During the Asian session today, all eyes were on inflation figures from Australia which, unlike other nations, publishes inflation data on a quarterly rather than monthly basis. Today’s figures showed a positive surprise, which sent the Aussie higher across the board. Why? And what do we know? The answers are below.
Definition
Consumer Price Index: Change in the price of goods and services purchased by consumers. Although this data is extremely late relative to inflation data from other countries, it’s the primary gauge of consumer prices and tends to create hefty market impacts. The average price of various goods and services are sampled and then compared to the previous sampling.
Why This Is Important
Consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates regardless of their inflation containment mandate.
Outcomes
The Quarterly CPI in Australia came in much better than expected, rising by 0.7% in Q3 of this year, compared to 0.4% in Q2, while estimates pointed to a rise by 0.5%. Moreover, this is the second monthly increase in a row, the highest inflation rate of this year, and the highest since Q2 of 2015.
What Do We Know
Today’s inflation data eases the chances for a rate cut by the Reserve Bank of Australia any time soon, at least until the end of the year. The Current Implied Probabilities for the RBA rate cut have fallen back below 35% chance until September of next year. Meaning, traders are not pricing in any rate cut anytime soon. Therefore, the Aussie has been facing higher demand since the announcement of the data.
Technical Point of View
The Aussie has been rising since the beginning of the year. Despite the fact that the currency had a bumpy rise in April through May, it managed to recover and stabilize around the 0.76 area. In the meantime, the pair is testing the 0.77 solid resistance level which has been maintained since August of this year. Today’s inflation data can be considered a good catalyst for a break above that resistance in the coming hours. If so, another push above 0.78 could be seen to retest the high of this year, which is at 0.7835.
