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AUD rebounds on CPI

AUD/USD has popped higher in Asia with gains driven by today’s inflation data.

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.
AUD
Source: Bloomberg

The headline Q4 CPI reading showed a 1.7% rise year-on-year, which was slightly below an estimate of 1.8%. This was also a sharp drop from the prior reading of 2.3% and represented the weakest reading since 2012.

However, the trimmed mean figure was better than expected on a quarterly basis (+0.7%) and in line year-on-year at 2.2%. Given the recent drop in oil prices and some of the challenges the domestic economy has been facing, it seems there was a very pessimistic view heading into the data, which probably explains the AUD weakness ahead of the release.

The pair has since bounced back and is currently testing the psychological $0.8000 level. It seems the feeling is that this largely reduces the probability of the RBA acting imminently. While the swaps market is still pricing in a high chance of rate cuts this year, the combination of the recent jobs numbers, trade balance and this CPI reading mean we are likely to see some of the short-term expectations of an imminent cut pared right back.

This, together with some choppy US data and a cautious Fed could see AUD/USD run a bit higher in the near term. There is a downtrend that comes in closer to $0.8100 and that’s probably where selling opportunities will kick in.

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CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.