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Australia Q2 CPI to drive AUD sentiment

AUD/USD has remained stubborn and is now trading around the 0.9400 mark. 

AUD
Source: Bloomberg

There was basically no reaction to Glenn Stevens yesterday and today’s focus will switch to Q2 CPI data. The data is due out at 11.30 AEST and is expected to come in at 0.5%, slightly weaker than the previous 0.6% reading. This implies a run rate of 3%. The trimmed mean which the RBA actually looks at is expected at 2.7%. This is still well within the RBA’s target range of 2%-3%. This is unlikely to make a difference to rate sentiment but if we do get a miss then this could fuel rate cut talk further. This has the potential to derail the pair in the near term and see it trade down towards the low 0.9300s.

The other factor threatening a risk rally today will be Indonesia after the opposition decided to contest Mr Jokowi’s victory. However, most political experts feel the constitution will prohibit a contest since the opposition actually withdrew from the race. Additionally, the transition was fairly uneventful and in fact was quite peaceful indicating the general population is quite pleased with the result. Any dips in AUD/USD could be used as a potential opportunity to buy as traders are likely to continue playing the ranges.

EUR/USD slips below key support

Meanwhile, EUR/USD slipped below the key 1.3500 mark and many have attributed this to US dollar strength. The greenback benefitted from a much better-than-expected existing home sales print which prompted expectations that we’ll continue to see signs of improvement in the US economy. We already heard from Janet Yellen last week that if data continues to track ahead of estimates, then this could lead to a shift on when to expect a move in the Fed funds rate.

Data has been limited on the European front this week, but is set to pick up tomorrow when some PMIs hit the wires. Data is also relatively light on the US front later today. The slip below 1.3500 is a big move for the pair and traders will now be trying to figure out how much lower it has to run. Trailing stops could be the best way to go in this situation as the move is still difficult to judge if it’s sustainable or we’ll see a bounce before fresh selling.   

Spot FX EUR/USD chart
Click to enlarge

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