Early Friday 01:30 GMT sees the RBA’s quarterly statement on monetary policy and China’s July month CPI and PPI data, which in turn makes that timeline the key for AUD/USD traders.

Considering recent comments from the Reserve Bank of Australia’s (RBA) Governor Philip Lowe and no change in monetary policy, it is expected that the RBA will sound a bit neutral towards future rate cuts while offering a downward revision to the economic forecasts.

On the other hand, China’s Consumer Price Index (CPI) may remain unchanged at 2.7% on YoY but can rise to +0.2% from -0.1% prior on the MoM basis. Further, the Producer Price Index (PPI) bears the consensus to decline to -0.1% from 0.0% on YoY format.

Ahead of the releases, TD Securities say:

The RBA has delivered two cuts as was factored into the May SoMP forecasts. However we expect the Bank to revise its near term GDP forecasts lower by 0.25% pts following a soft Q1 GDP print but raise its near term unemployment rate forecasts by 0.25% pts. Should the Bank maintain its longer term forecasts, the weaker starting point would imply the Bank needing to cut to hit its forecasts.

We expect CPI to push higher to 2.8% y/y in July from 2.7% y/y in June, largely driven by food prices. Rising pork prices (21.1% y/y in June) fuelled by the impact of African Swine Fever will likely continue to push up the food component of CPI and thus overall CPI over H2 19. Food prices rose 8.3% y/y in June compared to a 1.4% y/y increase in non-food CPI. We expect ex-food CPI to remain subdued, which will likely mean that PBoC does not pull back from its targeted easing stance.

How could they affect the AUD/USD?

While escalating tension between the US and China is already taking its toll on the Aussie pair, any further deterioration in either the central bank’s future monetary policy/economic outlook or inflation data from its latest customer China will be taken seriously by the sellers.

On the brighter note, the RBA might respect recently upbeat statistics from Australia and China after it peddled the brakes of the rate cut trajectory in its last meeting, which in turn will be Aussie positive if Chinese CPI also flashes welcome numbers.

Technically, the pair continues to aim for 0.6750/45 support-zone unless clearing June month low of 0.6831, which holds the key for the quote’s fresh recovery in the direction to 21-day exponential moving average (EMA) level near 0.0.6875. If prices slip under 0.6745, the yearly bottom of 0.6683 can lure bears.

Key Notes

AUD/USD weakens amid trade/political news ahead of key catalysts from RBA, China

AUD/USD Analysis: regains 0.6800 amid better market mood

About the RBA Monetary Policy Statement

The RBA Monetary Policy Statement released by the Reserve bank of Australia reviews economic and financial conditions determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. It is considered as a clear guide to the future RBA interest rate policy. Any changes in this report affect the AUD volatility. If the RBA statement shows a hawkish outlook, that is seen as positive (or bullish) for the AUD, while a dovish outlook is seen as negative (or bearish).

About China CPI

The Consumer Price Index is released by the National Bureau of Statistics of China. It is a measure of retail price variations within a representative basket of goods and services. The result is a comprehensive summary of the results extracted from the urban consumer price index and rural consumer price index. The purchase power of the CNY is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. A substantial consumer price index increase would indicate that inflation has become a destabilizing factor in the economy, potentially prompting The People’s Bank of China to tighten monetary policy and fiscal policy risk. Generally speaking, a high reading is seen as positive (or bullish) for the CNY, while a low reading is seen as negative (or Bearish) for the CNY.

About China PPI

The Producer Price Index released by the National Bureau of Statistics of China is a measurement of the rate of inflation experienced by producers. It captures the average changes in prices received by Chinese domestic producers of commodities in all stages of processing (crude materials, intermediate materials, and finished goods). Changes in the PPI are widely considered as an indicator of commodity inflation. If the Producer Price Index increase is excesive, it would indicate that inflation has become a destabilizing factor in the economy, The People’s Bank of China would tighten monetary policy and fiscal policy risk. Generally speaking, a high reading is seen as positive (or bullish) for the CNY, whereas a low reading is seen as negative (or bearish) for the CNY.

  • Prepared to use unconventional policy if its warranted comments fail to sustain the downside in AUD/USD.
  • We are prepared to cut rates further to meet our inflation and employment goals – Lowe said.
  • It is unlikely but possible that we head to the lower bound; hope to avoid doing so.

RBA governor Lowe is appearing before the House of Representatives' Standing Committee on Economics in Canberra. He is delivering a prepared text and along with colleagues will be answering politicians’ questions for about 3 hours.

He is dovish but has just made the most dovish statement yet, something that the markets were looking for and he delivered:

  • Prepared to use unconventional policy if it's warranted.
  • It is unlikely but possible that we head to the lower bound; hope to avoid doing so.
  • RBA Governor Lowe: depreciation in the Australian Dollar is helping the economy.

Earlier comments:

  • We are prepared to cut rates further to meet our inflation and employment goals.
  • Having cut rates twice in quick succession. we thought it was appropriate to wait and asses developments.
  • Inflation still expected to pick up, but the date at which it is expected to be back at 2% has been pushed out again.
  • Over 2020, inflation is forecast to be a little under 2% and over 2021 it is expected to be a little above 2%.
  • Australian economy to grow 2.5% this year; downward revision reflects weak consumption growth.
  • There are signs the economy has reached a gentle turning point.
  • Inflation will be below target band for some time.
  • Probable we will have spare capacity in the labour market for some time yet.
  • Reasonable to expect an extended period of low rates.

FX implications:

Should weigh on AUD, but we are seeing quite the opposite. all the odds are stacked against the Aussie yet it is 0.15% up in the Asian shift and holding around the 200- hourly moving average.

Note: Later in the day, the RBA also releases its quarterly Statement on Monetary Policy at 11:30am Syd.

"Tuesday’s brief statement indicated fairly modest changes compared to May. The RBA’s “central scenario is for the Australian economy to grow by around 2½ per cent over 2019 and 2¾ per cent over 2020.” Inflation is expected to take longer to return to target, “a little under 2 per cent over 2020 and a little above 2 per cent over 2021," analysts at Westpac explained

  • AUD/JPY hs defended the 200-hour MA support, despite dovish comments by RBA's Lowe.
  • Bullish hammer reversal seen on the daily chart indicates the path of least resistance is to the higher side.

AUD/JPY is currently trading at 72.06, representing marginal gains on the day, having hit a high and low of 72.23 and 71.67 earlier today.

The AUD picked up a bid at lows near 71.70 as the Reserve Bank of Australia's Governor Lowe while testifying before the House of Representatives' Standing Committee on Economics, said the inflation is likely to pick up.

Lowe, however, added that the date at which inflation is expected to be back at 2% has been pushed out again. Further, Lowe said that the central bank is willing to do unconventional policy, if indeed. So far, markets seem to have ignored that remark.

Notably, with the recovery from 71.67 to 72.00, the pair has defended the 200-hour moving average support, currently at 71.78

Looking forward, the AUD/JPY pair could rise further to 73.00 as the daily chart is reporting a bullish reversal candlestick pattern.

The pair closed above 72.06 yesterday, validating the hammer candle created on Wednesday. A hammer candle is widely considered an early warning of a bearish-to-bullish trend change. The reversal, however, is confirmed if the follow-through is positive on the following day.

Daily chart

Trend: Bullish

Pivot points

  • RBA’s Lowe shows readiness to cut the rates further before the House of Representatives.
  • AUD/USD buyers emphasize the absence of dovish statements, comments on Inflation.

With the RBA’s Governor expecting a pick-up in Aussie inflation, the AUD/USD pair surges to an intra-day high of 0.6816 during early Friday.

The Reserve Bank of Australia (RBA) Governor Philip Lowe appears for testimony before the House of Representatives' Standing Committee on Economics.

His initial comments showed the Aussie central bank’s readiness to cut the rates further if needed to meet inflation and employment targets. However, Mr. Lowe also mentioned that the inflation is likely to pick-up; though a bit later than previously anticipated.

Read more: RBA Lowe speaks before the House of Representatives: Says its reasonable to expect a period of low rates.

While the testimony is likely to run for a few more hours, traders considered taking long positions of the pair considering the initial absence of dovish statement and no signal for fresh rate cuts in the next meeting.

In addition to the on-going focus on RBA’s Lowe, the quarterly monetary policy statement from the central bank and China’s inflation data will also be the key for Aussie traders to watch.

Technical Analysis

The quote is yet to cross May month low of 0.6862 without which 0.6750/45, 0.6700 and 0.6677 could keep flashing on sellers’ radar.