AU CPI in focus

Low inflation in recent years has resulted in several central banks missing their inflation target, on the downside. Over the weekend, the Wall Street Journal published an article highlighting potential scenarios that might result in the Federal Reserve cutting interest rates. While the article stressed that a rate cut is not imminent, it did note comments made last week by Dallas Fed President, Robert Kaplan who said that inflation running persistently around 1.5% or lower is “something I’m going to certainly take into account” when setting rates.

Last week in New Zealand, more evidence of low inflation, with headline inflation for Q1 2019 printing at +0.1%, a large miss relative to the consensus forecast of +0.3%. Year on year inflation fell to +1.5%, a -40bp deceleration in annual terms, which has left the market pricing in a 55% chance of the RBNZ cutting interest rates at its next meeting on May 8th.

Tomorrow, its Australia’s turn with Q1 CPI expected to rise by just 0.2%, resulting in year on year inflation falling to 1.5% from 1.8%. A 10% fall in fuel prices over the quarter, will be the main drag on prices. The drought which I witnessed first-hand while travelling through country NSW last week, should see food prices rise.

Core inflation, the RBA’s preferred measure is expected to rise by 0.4%, which would see the year on year rate fall to 1.6%. This would mark the 13th consecutive quarter that year on year core inflation has fallen short of the bottom of the RBA’s 2-3% target range. After breaking above a 12 month down trend resistance line two weeks ago at .7150, further upside progress for the AUDUSD was firmly capped by a higher layer of resistance around .7200/20. Since then, the AUDUD has fallen back towards the middle of its .7200/20 - .7000c/.6980 range. After testing and rejecting the top of the range, the risk tomorrow appears to be for a softer than expected CPI number and a test of range lows. Whether a range break then develops for the AUDUSD remains to be seen.

Low inflation in recent years has resulted in several central banks missing their inflation target, on the downside. Over the weekend, the Wall Street Journal published an article highlighting potential scenarios that might result in the Federal Reserve cutting interest rates. While the article stressed that a rate cut is not imminent, it did note comments made last week by Dallas Fed President, Robert Kaplan who said that inflation running persistently around 1.5% or lower is “something I’m going to certainly take into account” when setting rates.

Last week in New Zealand, more evidence of low inflation, with headline inflation for Q1 2019 printing at +0.1%, a large miss relative to the consensus forecast of +0.3%. Year on year inflation fell to +1.5%, a -40bp deceleration in annual terms, which has left the market pricing in a 55% chance of the RBNZ cutting interest rates at its next meeting on May 8th.

Tomorrow, its Australia’s turn with Q1 CPI expected to rise by just 0.2%, resulting in year on year inflation falling to 1.5% from 1.8%. A 10% fall in fuel prices over the quarter, will be the main drag on prices. The drought which I witnessed first-hand while travelling through country NSW last week, should see food prices rise.

Core inflation, the RBA’s preferred measure is expected to rise by 0.4%, which would see the year on year rate fall to 1.6%. This would mark the 13th consecutive quarter that year on year core inflation has fallen short of the bottom of the RBA’s 2-3% target range.

After breaking above a 12 month down trend resistance line two weeks ago at .7150, further upside progress for the AUDUSD was firmly capped by a higher layer of resistance around .7200/20. Since then, the AUDUD has fallen back towards the middle of its .7200/20 - .7000c/.6980 range. After testing and rejecting the top of the range, the risk tomorrow appears to be for a softer than expected CPI number and a test of range lows. Whether a range break then develops for the AUDUSD remains to be seen.