AUD / USD – Softer CPI Prepares Bears for Larger Drop

Australian’s Q4 CPI up 0.2% (Q/Q) against an estimated 0.4%. Trimmed mean CPI up 0.6% (Q/Q), also lower than expectations of 0.7%.

5 Minutes Chart


With a weaker CPI, RBA will have larger scope for looser monetary policy in their next meeting on 5th Feb. Predictably, AUD/USD went lower, with price recovering fairly shortly after. From a technical standpoint, AUD was already weakening way before the announcement, as evident by the bearish breakout from the upward rising channel. A downward trendline was also already formed before the announcement (confirmed with 3 touch points). The drop from 1.0560 – 1.0545 does not really promote a fresh new bearish outlook, but rather simply accentuates the bearish momentum. Recovery post announcement has also respected the downward trendline, implying that broad sentiment did not really change much – even if there are more speculation regarding RBA rate cut, it is not immediately apparent.

Daily Chart


Outlook on Daily Chart isn’t particularly bright, even though price is still on track with higher highs and higher lows since early Oct 2012. Price has failed to takeover 1.06, and though we’ve cleared 1.05, current daily candle appears to be trading just below the 23.6% retracement ( 1st Mar 2012 high vs 2nd June 2012 low). To further anchor a bearish bias we have Stochastic indicator with readings heading lower after entering the Overbought region. What this technical setup needs is some fundamental push to send bears on their way. As mentioned above, sentiment of RBA rate cut increasing helps in this regard, it is just a pity that the follow-through seems lacking (a paltry 15 pip drop with rebound sending us back to the original levels). However we can hold our horses and wait for European and US traders which is coming in later and see if sentiments changes. Check out the Overnight Index Swap during this period for early signs of traders pricing in an RBA rate cut in the next meeting.



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