AUD/USD – Higher on Chinese Easing Hopes

Aussie dollar traded higher after China’s CPI data came in lower than expected. Y/Y Consumer inflation benchmark for March grew 2.1% against an expectation of 2.5%. This is also a sharp decline from last month’s print of 3.2%, suggesting that the short term glut of higher inflation pressure in recent months has been alleviated. Inflation is always a headache for the Central Government of China as they are caught between more easing to stimulate the slowing economy (nicknamed “hard landing”) versus rising cost of living in many of its developed cities. Inflation rate hovered above 3.0% early last year, hitting as high as 4.5% for Jan 2012, and current 2013 average of around 2.4% will provide relief to Chinese Central Bank PBOC to start considering stronger stimulus measures especially since BOJ has started the ball rolling.

Hourly Chart

Market loves stories of stimulus these days, and hence it is no surprise to see AUD/USD rallying higher on stronger easing hope. Price hit above current short-term support/resistance of 1.044 but retraced back gains quickly, with the hourly candle closing just below the resistance level. Stochastic reading is pointing lower with a Stoch/Signal cross just when price is trading under 1.044 – enhancing the possibility of a bearish cycle underway. Comparing recent peaks, we can see that current readings are lower than the ones seen on 3rd and 8th April. However, this doesn’t suggest that readings still can break higher nor imply that 1.0440 can be broken. Instead, if we look at the peaks of 5th April, when the bullish pullback has also stalled just under 1.0440, the Stoch readings are much higher, suggesting that current price rally is certainly too fast too furious, and a correction may occur soon.

Daily Chart

Daily Chart doesn’t share short-term bearish enthusiasm. Price has bounced from the 1.035 support and is still on track to test 1.05 once more after failing twice in recent weeks. Stochastic does not agree though, with readings still firmly pointing lower, though Stoch/Signal lines are converging to one another, suggesting a slow down in bearish momentum and potentially forming an interim trough. Should bulls be able to break 1.05, 1.06 will be a viable target though acceleration to the upside may only be visible should price trade above 1.06 to signal fresh new bullish impetus. Failure to move above 1.06 will result in sideway swing from 1.015 – 1.06 continue to be in play. A break below 1.035 will help bears to invalidate bullish pullback from early Mar and push bearish momentum back towards 1.015 with a possibility of breaking the sideways channel floor seen since July 2012.

More Links:
AUD/USD – Bounces off Support at 1.0360 to 1.0430
NZD/USD – Continue to Climb Higher on Housing Prices
GBP/USD – Loses Ground After Recent Gains

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