Originally published by AxiTrader
The Australian dollar is sitting just above 77 cents at 0.7705 this morning after losing 0.95% in the wake of the weaker than expected inflation data yesterday and the resultant postponement of any chance of an RBA rate hike in the next six months.
To recap Q3 CPI released yesterday was a shocker. Whichever way you cut it the only conclusion you can come to is that without the rise in energy prices Australia would have had virtually no inflation at all in the third quarter.
Headline inflation missed to the low side of estimates with a 0.6% print for the quarter and 1.8% rise in prices year on year. Tradeables inflation was down year on year by 0.9% while non-tradables rose 3.2%. IN non-economic speak that means Australia is essentially importing low inflation from the globe while domestic factors are still putting pricing pressures on households and businesses in the local economy. It speaks to highly uneven outcomes across the economy.
But the RBA has to manage the economy in aggregate and this headline print and the underlying CPI which rose just 0.35% to leave the year on year rate at 1.9% means there is little to no chance that the RBA will be raising rates anytime soon.
And in a world where forex traders appear to have fully assimilated the outlook for growth, the Fed, and interest rate rises into the US dollar the surprise on the Australian side of the cross knocked the Aussie for six.
At 77 cents this morning the AUD/USD is sitting at a really important juncture right now. Given positioning data there is a possibility that this selling accelerates further if this 0.7685/95 region gives way.
That level is super important. The Aussie hasn’t traded below this moving average since June. A break and hold for a day would be decisive and a signal a deeper retracement may be underway.
That's why the high level of speculative longs needs to be taken into account.
0.7630/50 then becomes important support with a break of the lower level a signal that the Aussie, like the Kiwi before it, may be about to complete a full round trip of the May/September rally.
That would imply a move back into the 0.73/0.74 region.
But in the same way when last week I wrote the AUD/USD could rally to 0.8050 if 0.79 broke this support at the trendline and 200-day moving average would need to break, let alone the 0.7630 level, to open up this possibility.
On the day the one and 4-hour charts are deeply in oversold territory which would imply a rally back toward 0.7720/40, maybe even 0.7760. With support at last nights lows at 0.7689.
Have a great day's trading.