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.