You are here: Home > articles > Forex > Aussie looks vulnerable ahead of expected drop in CPI – Preview
Aussie looks vulnerable ahead of expected drop in CPI – Preview
October 23, 2023 3:28 pmVideo
Latest News
- Analysis for EUR/USD on April 15th. Monday – a tough day for the euro April 15, 2024
- GBP/USD: trading plan for the US session on April 15th (analysis of morning deals) April 15, 2024
- EUR/USD: trading plan for the US session on April 15th (analysis of morning deals). Euro is at an impasse April 15, 2024
- GBP/USD: Will sterling hold steady against dollar? April 15, 2024
- Technical Analysis – USDJPY rallies to another fresh 34-year high April 15, 2024
- Will Netflix earnings take the share price closer to its record highs? – Stock Markets April 15, 2024
- EUR/USD. April 15th. Bulls panic and retreat from the market April 15, 2024
- GBP/USD. April 15th. The dollar gains confidence April 15, 2024
- Weekly forecast based on simplified wave analysis for GBP/USD, AUD/USD, USD/CHF, EUR/JPY, AUD/JPY, and the US Dollar Index April 15, 2024
- XM’s Heartfelt Ramadan Iftar Support April 15, 2024
- Weekly forecast based on simplified wave analysis of EUR/USD, USD/JPY, GBP/JPY, USD/CAD, NZD/USD, and Gold on April 15th April 15, 2024
- Technical Analysis – US 500 reverses towards 123.6% Fibonacci April 15, 2024
- Market Comment – Iranian attacks put markets on edge, but fallout limited April 15, 2024
- XM and Human Initiative Spread Hope to Flood Disaster Evacuees in Demak April 15, 2024
- Weekly Technical Outlook: 15/04/2024 – GBPUSD, USDJPY, AUDUSD April 15, 2024
- Forex forecast 04/15/2024: EUR/USD, GBP/USD,USD/CAD, USDX and Bitcoin from Sebastian Seliga April 15, 2024
- Weekly Technical Outlook – GBPUSD, USDJPY, AUDUSD April 15, 2024
- Technical Analysis – Gold in a wait-and-see mode April 15, 2024
- UK inflation report could shift the market’s focus away from geopolitics – Preview April 15, 2024
- Gold Still Expected to Rise on Wall Street and Main Street April 15, 2024
Recent RBA decisions have been a close call
The Reserve Bank of Australia’s last few policy decisions have been a close call, but policymakers have nevertheless opted to keep the cash rate unchanged since June. Not closing the door to further hikes has spurred investors to price in at least one more 25-basis-point increase over the next few months. But ultimately, whether the RBA decides to tighten again will depend on the data.
And this is where it gets difficult for policymakers as the economic picture is no less blurry than it is for other central banks like the Federal Reserve. The Australian economy performed slightly better than expected during the first half of 2023, with quarterly growth averaging 0.4%. It’s likely, though, that Q3 growth will be somewhat lower if the PMI surveys are to be believed.
Is the decline in inflation stalling?
The good news is that inflation has been trending lower all year and it is projected to have fallen further in the third quarter from 6.0% to 5.3% y/y. The RBA’s underlying gauges of inflation – the weighted median CPI and trimmed mean CPI – are also expected to have declined during the quarter.
The problem is that on a monthly basis, inflation is creeping up again. It edged up to 5.2% y/y in August from the prior 4.9% and the forecast is for another acceleration to 5.4% in September. Most likely, this increase is down to higher fuel prices and will be temporary. However, following the recent escalation of violence in the Middle East, there’s an even greater risk that the rally in oil prices will be anything other than short lived.
Upside risks
Domestically, the tight labour market is another upside risk to inflation. The unemployment rate stood at just 3.6% in September and although wage growth has so far remained quite modest, a further drop in joblessness in the coming months is bound to raise concerns at the RBA.
In addition, the situation in China – Australia’s largest trading partner – appears to be stabilizing, possibly even improving. Moreover, with trade tensions between the two countries thawing lately, the China part of the equation could soon become a tailwind instead of a headwind. So where does all this leave the Australian dollar?
Aussie is swimming against the risk tide
The aussie has slumped towards the $0.6300 area during October, the weakest in almost a year. Hotter-than-expected CPI numbers could lift the battered currency towards its 50-day moving average, which has just landed on the $0.6400 level, as this would boost the odds of the RBA hiking rates again before the year-end.
However, unless risk appetite improves or yield differentials with the US narrow in the aussie’s favour, it will be hard for the pair to stage a more meaningful rebound.
On the other hand, if inflation moderates more than anticipated, the aussie could come under renewed selling pressure to potentially revisit the October 2022 trough of $0.6169, which was a two-and-a-half-year low.
Related Posts: