AU monthly CPI preview as AUD/USD sets sail higher

[MongiIG]

November's CPI preview and the rise of the Australian dollar.

Source: Bloomberg

 

Forex Consumer price index Currency United States China Inflation

 Tony Sycamore | Market Analyst, Australia | Publication date: Tuesday 10 January 2023 

After a sharp sell-off on the first trading day of 2023, the AUD/USD has since recovered all lost ground and much more to be trading at its highest level in four months.

China

The shift in sentiment in the AUD/USD results from a combination of events over the past week, starting with media reports of China easing its ban on imports of Australian coal.

Further supporting the rally are gains in commodity prices as Chinese traders look to position for a sharp rebound in growth in the second half of 2023.

U.S.

Finally, U.S. employment data released on Friday night showed that the U.S. labour market is rebalancing, easing fears of overheating and raising hopes of an elusive soft landing.

The other impact of Friday’s U.S. jobs report was a sharp repricing in the front end of the U.S. yield curve, which undermined the US dollar, giving commodity prices (priced in US dollars) another kick higher.

CPI

The next big test for the AUD/USD will come this week from Australian monthly CPI data for November, to be released on Wednesday at 11.30 am AEDT.

Despite the monthly CPI indicator only including updated prices for between 62% and 73% of the weight of the CPI basket, it will be closely watched as the interest rate market currently sits on a knife edge ahead of the February RBA meeting (about 60% priced for a 25bp rate rise to 3.35%).

In October, monthly headline CPI increased by 6.9% Y/Y, decelerating from September’s record high of 7.3%. The most significant contributors to the annual rise were new dwellings (+20.4 per cent), automotive fuel (+11.8 per cent) and fruit and vegetables (+9.4 per cent).

The market is looking for a small decline in inflation to 6.8% Y/Y, which, while representing another step in the right direction, is still well above the RBA’s target range of 2-3%.

Providing the AUD/USD holds onto its break above .6900c and Friday’s rally above the 200-day moving average at .6846, it should be enough to see the AUD/USD ride the tailwinds outlined above towards the mid-August .7137 high.

AUS/USD daily chart

Source: TradingView

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