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Forex: CPI data sends Aussie Higher

Posted by Akhilesh Ganti on Jul 22, 2014 10:40:00 PM

Australia's Q2 CPI rose +0.5%, matching analyst estimates, but the core components came out higher than forecast and the annualized reading reached +3.0%.

  • 2Q CPI rose 0.5% QoQ vs est. 0.5% gain
  • 2Q CPI Weighted Mean rose 0.6% QoQ vs est. 0.7% gain
  • 2Q CPI Trimmed Mean rose 2.9% YoY vs est. 2.7% gain
  • 2Q CPI rose 3% YoY vs est. 3% gain
  • 2Q CPI Weighted Mean rose 2.7% YoY vs est. 2.7% gain

{chart: Bloomberg}(click to enlarge)
AU CPI Q2 072214

This release reaffirms the RBA's decision to adopt a neutral stance towards monetary policy as inflation heads up towards the higher end of their 2% to 3% target band. The central bank might be willing to be tolerate slightly higher inflation numbers and refrain from embarking on a tightening policy, at least for the remainder of this year, as it tries to rebalance the economy from one that was mining-centric to one that is a bit more balanced. What seems more certain, especially as inflationary pressures start to mount, is that the odds for further rate cuts have been greatly diminished.

AUD/USD, which was trading around 0.9385 just prior to the release, immediately shot up through 0.94 before running into offers around 0.9430. The second wave saw the pair breach through this level as it takes aim at moderate resistance at 0.9450.


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