Australian CPI overview

Early on Tuesday, at 00:30 GMT, markets will see the 2021’s fourth quarter (Q4) inflation data for the Australian economy.

The headline Consumer Price Index (CPI) QoQ is likely to rise from 0.8% QoQ to 1.0%, as well as to 3.2% from 3.0% YoY prior.

On the contrary, the Reserve Bank of Australia's (RBA) trimmed-mean CPI is expected to remain unchanged on the QoQ basis at 0.7% but may rise to 2.4% versus 2.1% during the stated period.

Given the recently strong Aussie jobs report and easing covid fears, AUD/USD bulls will pay close attention to the key inflation report for backing their hawkish bias for the Reserve Bank of Australia’s (RBA) rate hike concerns.

Ahead of the release, TD Securities said,

The better than expected outcomes for retail sales, employment and job vacancies in recent weeks means a beat on trimmed mean inflation makes the RBA's dovish stance untenable, setting the RBA on course for rate hikes, potentially a quarter earlier than our Q4 forecast.

On the same line were comments from Westpac stating,

In terms of key drivers, dwelling purchase prices, auto fuel and food will play an important role, and holiday travel will also contribute. There is an upside risk to dwellings as Homebuilder grants expire and cost pressures lift. Uncertainty around durable goods remains. Westpac forecasts a 1.1% q/q and 3.2% y/y rise for the headline CPI (market median is 1.0% and 3.2%). The offsetting soft components in Q4 are seasonal, thereby supporting a solid 0.7% (2.4%yr) gain in the trimmed mean measure.

How could it affect the AUD/USD?

AUD/USD struggles to extend the latest bounce off a five-week low, flashed the previous day, as market players await the key Aussie inflation figures. Also challenging the bulls are the concerns over the Fed’s rate hike and Russia-Ukraine tussles, which in turn weigh on stock futures and propel US Treasury yields to offer additional hurdle to the pair’s recovery moves.

However, the recently positive fundamentals from Australia will get a chance to propel the AUD/USD prices should today’s Q4 CPI data manage to match/surpass the upbeat forecasts. However, Fed becomes more important than the RBA and hence any upside moves may have a short-term life until being too strong.

Technically, AUD/USD extends bounce off a multiple support-zone established since late November, around 0.7090-80. However, bearish MACD signals and the support-turned-resistance line from December 20, near 0.7170, pose as the short-term key hurdle followed by the 200-DMA level of 0.7200.

Key Notes

AUD/USD rebound approaches previous support near 0.7170 ahead of Australia inflation

AUD/USD Weekly Forecast: Unreliably optimistic Australian data hides a nearby crisis

About the Australian CPI

The Consumer Price Index released by the RBA and republished by the Australian Bureau of Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of AUD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. A high reading is seen as positive (or bullish) for the AUD, while a low reading is seen as negative (or Bearish).