AUD/USD threatening key level on slow progress in taming underlying inflation pressures

AUD/USD is testing downtrend resistance running from early 2022
Australia’s latest inflation report revealed slow progress in lowering underlying price pressures
The data keeps the risk of another RBA rate hike early next year on the table

Headline Australian consumer price inflation (CPI) undershot market expectations in October, although progress on taming underlying price pressures was disappointing, helping to boost AUD/USD.

Headline CPI may not reflect true inflation trend

According to the ABS, headline CPI rose 4.9% from a year earlier, down from 5.6% in the year to September and three-tenths below the 5.2% median economist forecast. However, the ABSA pointed out rebates for rents and electricity charges impacted the overall result, giving somewhat of a false impression of the overall inflation trend.

Beyond the headline figure than markets initially reacted to, the news on underlying price pressures was not good with CPI ex volatile items such as fuel, fresh food and holiday travel lifting 5.1% over the year, down from 5.5% in September but hotter than the sub-5% levels some forecasters had been looking for.

That, along with the disclaimer the monthly inflation indicator does not contain significant amounts of information on services prices – which is the area of concern right now – explains why the initial knee-jerk reaction in AUD/USD has been faded, putting the pair within site of key downtrend resistance. With the US dollar remaining under pressure, there’s every chance it could go unless upcoming US economic data fails to make the case for more than 100 basis points of rate cuts being priced in the United States next year.

Near-term price action key for AUD/USD

For those considering taking a position in AUD/USD around these levels, it may pay to watch the near-term price action for clues as to where it may head next. A clean break and hold above downtrend resistance located currently around .6670 would be a bullish development, potentially opening the door to a push towards minor resistance at .6720 and even the double-top of .6900 seen earlier this year. A failure to cleanly break this level may result in a near-term pullback towards support at .6600 and the 200-day moving average at .6582.

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.