CPI Still Not Falling Fast Enough

The latest Australian inflation data overnight no doubt makes difficult reading for the RBA . Annual CPI was seen rising 6.8% last month, above the 6.4% the market was looking for. While a slight reduction from the prior month’s 7% reading, given the RBA’s insistence that it needs to bring inflation down to target quicker than is currently happen, the data poses serious questions ahead of the next RBA meeting. The last hike was, itself, a surprise. However, with the RBA signalling that it stands willing to hike further if necessary, this latest CPI data certainly makes a strong case for expecting a further hike at the bank’s next meeting.

Weak China Data Impact

AUD is having a difficult day today. While we saw some initial buying in response to the data, weak data out of China overnight has sent the currency falling given the expected knock on impact to trade with Australia. Sticky inflation at elevated levels is a key threat to Aussie growth. Additionally, RBA’s Lowe testified today that softer productivity growth could become a supporting factor for higher inflation. Looking ahead, the risks of further rate hikes from the RBA look elevated now though, against the current risk backdrop, the impact seems to be in lowering AUD on softened growth expectations.

Technical Views

AUDUSD

The sell off in the Aussie has seen the pair breaking down below the .6535 level, extending the bear channel which has framed the reversal from highs. With momentum studies bearish, the focus is on a further push lower while price holds below this level with .6390 the next target.