Australian Inflation Subdued - Is Aussie Ready to Correct?

Last updated 10/26/2009 2:35 AM ET (GMT -5) 2 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Q3 Australian Producer Price Index printed softer than expected at 0.1% versus projections for an 0.3% increase but the data was markedly higher than the -0.8% decline in Q2. On an annual basis producer prices were up 0.2 percent versus forecasts for a 0.5 percent rise after the 2.1 percent gain in the previous three months.

The news suggest that tomorrow’s CPI data may be cooler than the market forecasts, alleviating the need on the RBA to raise rate quickly in order to contain inflation. Consensus expectations call for the Australian CPI to print 0.9% versus 0.5% the period prior.

Part of the reason for tempered price levels may be due to the recent appreciation of the Australian dollar which reached 14 month highs against the greenback last week. The strengthening Aussie is clearly having a deflationary impact on prices in the Australian economy requiring a less aggressive policy posture from the RBA. Australian futures markets had initially priced in a 50bp rate hike at the upcoming November monetary policy meeting but have since pared those expectations to a 25bp rate increase.

After climbing to .9275 on the back of comments from China that it may be diversifying more of its reserves away from the dollar, the Aussie has steadily sold off in late Asian session as traders locked in profits accumulated over the past several weeks. If tomorrow’s CPI data confirms today’s PPI results the Aussie may see a sharper correction to towards the .9000 level especially if risk aversion flows return as the week progresses.

Comments (2)

hsbc

October 26, 2009 at 03:08 AM ET

sold off? isnt aud higher than the close? gbp and eur too

bschlossberg

October 26, 2009 at 03:25 AM ET

"After climbing to .9275 on the back of comments from China that it may be diversifying more of its reserves away from the dollar, the Aussie has steadily sold off. "

Where is the price now? .

9247

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.