Australia CPI q/q 01/26/10

7:30 pm AU CPI q/q         Forecast 0.4%      Previous 1.0%
ACTION: AUD/USD        BUY 0.7%      SELL 0.0%

We’ll be looking to trade the quarterly CPI release out of Australia.  As reflected in recent RBA rate statements, Australia is facing a rise in inflation, and this number could surprise the upside.  RBA hiked rates last few rate decisions, and with a surprise better-than-expected release, we could have justification for a further rate hike. 

Here is the plan, if we get better than expected CPI data, we should see an instant appreciation of AUD by at least 40 pips within the hour. Still, if we get a worse-than-expected number, AUD should drop as traders will probably feel uncertain over whether or not RBA will hike the rate during the next meeting; therefore, we should expect the market to consolidate.  Of course, the deviation I am looking for must be at least 0.3%, or I will skip the trade.

CPI Definition

“The Consumer Price Index (CPI) measures the rate of inflation (i.e., the rate of price changes) experienced by consumers when purchasing goods and services. A rising trend has a positive effect on the nation’s currency. The central bank’s primary objective is to achieve price stability; when inflation rises above an annualized rate of approximately 2%, it will raise interest rates to bring prices down. Higher interest rates attract foreign investment, thus increasing demand for the nation’s currency. CPI is one of the most closely watched indicators and will usually have a high impact upon release.”