Australia CPI Preview: What It Means for the AUDUSD

The AUDUSD comes into focus once more with the Australia CPI for the March quarter of 2020 scheduled for release on Wednesday at 1.30 am GMT. This is the first Australia CPI data which to showcase the coronavirus pandemic as it affects the prices of goods and services on the consumer end of the table in Australia.

The forecast is for a reading of 0.2%, against a previous number of 0.7%. The forecast comes on the background of the speech made by the RBA Governor on April 21, where the coronavirus pandemic and other critical economic challenges were expected to “cast a shadow” on the Australian economy for some time to come. The RBA has downgraded all its significant economic forecasts: it expects GDP to contract 5% and the unemployment rate to hit 10%. The resultant reduction in spending power is expected to exert downside pressure on the inflation rate, and the RBA’s decision to leave the cash rate target at 0.25% for three years buttresses this fact. 

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Trading the AUDUSD with the Australia CPI

The deviation to trade with is 0.5% (previous – actual). A drop below -0.3% or more negative could be interpreted as AUD-negative. If the Australia CPI comes in at 0.7% or higher (unlikely), traders may decide to continue the push on the AUDUSD as the risk appetite improves. 

The bullish pennant pattern has allowed the pair to bounce from the 0.63133 support line. The bullish flag formation on the daily chart also shows the potential for further upside, targeting 0.66742 and 0.68615 on a successful break of 0.65257. 

On the flip side, a much lower CPI outcome could have bearish implications for the AUDUSD, and traders may respond by initiating a pullback towards 0.63133. A breakdown of 0.63133 opens the door towards 0.62625 as well as 0.61748 and 0.60105.

 

 

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