AUD/USD: Trading the Australian CPI Jan 2015

Australian CPI (Consumer Price Index), which is released each quarter, is an inflation index which measures the change in the price of goods and services charged to consumers. A reading which is higher than the market forecast is bullish for the Australian dollar.

Here are all the details, and 5 possible outcomes for AUD/USD.

Published on Wednesday at 00:30 GMT.

Indicator Background

Analysts consider CPI one of the most important economic indicators, and the release of the Australian CPI can affect the direction of AUD/USD. If inflation is considered too high or too low, the central bank may intervene by adjusting interest rates, which will also affect the local currency.

The CPI reading for Q3 was 0.5%, just above the estimate of 0.4%. The markets are expecting a softer reading in Q4, with an estimate of just 0.3%. If the index continues to drop, the RBA will face increased pressure to lower interest rates.

Sentiments and levels

The US dollar continues to show broad strength and if  Australian inflation numbers  are weak, the Aussie slide could continue. In the US, the Fed will release its statement later in the week, and if the Fed provides any clues  about the timing of a rate hike,  the greenback  could respond with gains. So, the overall sentiment is bearish on AUD/USD towards this release.

Technical levels, from top to bottom: 0.8313, 0.8150, 0.7978, 0.7904, 0.7799 and 0.7601.

5 Scenarios

1. Within expectations: 0.0% to 0.6%. In this scenario, AUD/USD could show some slight fluctuation, but it is likely to remain within range, without breaking any levels.
2. Above expectations: 0.7% to 1.1%: A stronger reading than predicted could push the pair above one resistance line.
3. Well above expectations: Above 1.1%: An unexpectedly sharp rise in inflation could push AUD/USD upwards, with two or more lines of resistance at risk.
4. Below expectations: -0.5% to -0.1%: A lower  in negative territory  could pull the pair downwards, with one support level at risk.
5. Well below expectations: Below -0.5%:  In this scenario,  the pair could break below  two or more support levels.

For more on the Aussie, see the AUD/USD forecast.

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