Australian Dollar is sold off sharply after much weaker than expected consumer inflation data.
- Headline CPI rose 0.0% qoq, 1.3% yoy in Q1, down from 0.5% qoq, 1.8% yoy, missed expectation of 0.2% qoq, 1.5% yoy. The 1.3% annual rate is also the slowest since September 2016.
- RBA trimmed mean CPI rose 0.3% qoq, 1.6% yoy, below expectation of 0.4% qoq, 1.7% yoy. Annual rate is slowest since December 2016.
- RBA weighted median CPI rose 0.1% qoq, 1.2% yoy, well below expectation of 0.4% qoq, 1.6% yoy.
The weak inflation data heighten the prospect of RBA rate cut in May, together with RBNZ. But for now, it still seems a bit early for RBA to act given relative resilience in job data. May is more an ideal occasion for RBA to turn dovish with new economic projections and SoMP. If it happens, the case for a cut in August would be secured.
AUD/USD’s steep decline and acceleration through 0.7052 support confirms that corrective recovery from 0.7003 has completed with three waves up to 0.7205. Decline from 0.7295 should be ready to resume through 0.7003 support, towards 0.6722 low.
EUR/AUD’s strong rally also suggests that corrective fall from 1.6765 has completed with three waves down to 1.5683, well ahead of 1.5346 key support. Further rise should be seen to 1.6122 resistance next. Break will pave the way back to 1.6765.
AUD/JPY’s rebound from 70.27 was relatively stronger than AUD/USD. But even so, it was limited well below 83.90 key resistance. Thus, it’s more likely that such rebound is merely a correction. Today’s sharp decline is raising the prospect that it’s already completed. We’d expect deeper fall to retest 77.44 support first. Decisive break there will revive medium term bearish outlook for 70.27 low.
