Q1’19 Australia Inflation Report & AUDUSD Price Forecast

Q1’19 Australia Inflation Report & AUDUSD Price Forecast


Talking Points:

– The Q1’19 Australia inflation report is due on Wednesday, April 24 at 01:30 GMT.

Despite a rebound in base metal prices and a stable Australian Dollar, more disinflation is due on the topline figure.

Retail traders are net-long AUDUSD and have decreased their short positioning in the past week.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

04/24 WEDNESDAY | 01:30 GMT | AUD Consumer Price Index (1Q)

Price pressures in Australia are expected to have receded further at the start of 2019, according to a Bloomberg News survey. Despite a rebound in base metal prices and a stable Australian Dollar, more disinflation is due on the topline figure, sending it closer to the lower end of Reserve Bank of Australia’s +1-3% target range in Q1’19.

Due in at 1.5% from 1.9% (y/y), the Q1’19 Australia inflation report is expected to be another signpost for the RBA that necessitates neutrality in its policy stance in the near-term and perhaps more dovish considerations by the end of the year. Even though labor markets have continued to improve in recent months, a lack of wage growth and rising indebtedness of households (already at all-time highs) makes for a concerning future for consumption trends.

Top 5 Events: Q1'19 Australia Inflation Report & AUDUSD Price Forecast

Ahead of the Q1’19 Australia inflation report release, rates markets are taking on a dovish bias. While the odds of a 25-bps rate cut are just short of 12% for the May meeting, the probability of a cut exceeds that of a hold starting in August, according to overnight index swaps. By the end of 2019, rates markets are pricing in a 75% chance of a move by the RBA.

Pairs to Watch: AUDJPY, AUDNZD, AUDUSD

AUDUSD Technical Forecast: Daily Price Chart (August 2018 to April 2019) (Chart 1)

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AUDUSD has been trading in a symmetrical triangle since early-December 2018, and this past week it appeared that AUDUSD price action was leading to a bullish breakout. But the breakout attempt on Tuesday and Wednesday failed, with price closing back within the triangle consolidation on Thursday; AUDUSD price was unable to clear out the February 21 bearish outside engulfing bar high at 0.7207, now going on two-months as swing resistance.

As such, the AUDUSD technical forecast has necessarily weakened in recent days. Price has now fallen below the daily 8-, 13-, and 21-EMA envelope as momentum has started to turn lower. Slow Stochastics have turned to the downside out of overbought territory, and daily MACD has turned to the downside as well.

Now that AUDUSD prices are below the daily 21-EMA, the odds are increasing for of a deeper setback towards early-December 2018 symmetrical triangle support around 0.7025 by the end of April.

IG Client Sentiment Index: AUDUSD (April 23, 2019) (Chart 2)

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AUDUSD: Retail trader data shows 64.5% of traders are net-long with the ratio of traders long to short at 1.82 to 1. The percentage of traders net-long is now its highest since Apr 01 when AUDUSD traded near 0.71105. The number of traders net-long is 7.0% higher than yesterday and 23.0% higher from last week, while the number of traders net-short is 25.6% lower than yesterday and 33.4% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUDUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUDUSD-bearish contrarian trading bias.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX





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