Introduction to Australia’s Consumer Price Index
Australia’s Consumer Price Index (CPI) climbed by 3.4% year-over-year (YoY) in November, following a 3.8% increase reported in the previous reading, the latest data published by the Australian Bureau of Statistics (ABS) showed on Wednesday. The market consensus was for 3.7% growth in the reported period.
Understanding the Consumer Price Index
The RBA Trimmed Mean CPI for November rose 0.3% and 3.2% on a monthly and annual basis, respectively. The monthly Consumer Price Index came in at 0% in November, compared to the previous reading of 0%. The CPI is a key indicator of inflation, which is a sustained increase in the general price level of goods and services in an economy over a period of time.
Impact on the Australian Dollar
The Australian Dollar (AUD) attracts some sellers following the inflation data from Australia. The AUD/USD pair is losing 0.19% on the day to trade at 0.6726, at the press time. This reaction is due to the fact that the inflation rate is an important factor in determining the interest rates set by the Reserve Bank of Australia (RBA).
Factors Affecting the Australian Dollar
The Australian Dollar is affected by several factors, including the level of interest rates set by the RBA, the price of its biggest export (Iron Ore), the health of the Chinese economy, inflation in Australia, its growth rate, and Trade Balance. Market sentiment, whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off), is also a factor, with risk-on positive for AUD.
What to Expect from Australia’s Inflation Rate Numbers
Economists forecast Australia’s CPI to increase by 3.7% annually in November, after rising by 3.8% in October – the highest since June 2024 and above median forecasts of 3.6%. The RBA’s inflation target is in the range of 2%-3%. Improved business conditions, robust economic growth, and hotter-than-expected inflation prompted the central bank to keep the Official Cash Rate (OCR) steady at 3.6% following its December monetary policy meeting.
How Could the Consumer Price Index Report Affect AUD/USD?
Heading into the Australian CPI inflation showdown, the AUD is sitting at its highest level in 15 months against the US Dollar (USD) near 0.6750. Expectations of monetary policy divergence between the RBA and the US Federal Reserve (Fed) remain an important catalyst underpinning the AUD/USD pair. A surprise pick-up in Australia’s inflation could lift the odds for an interest rate hike by the RBA as early as next month, pushing AUD/USD further toward the 0.6800 level.
Key Technical Levels for Trading AUD/USD
The AUD/USD pair could see a fresh leg north toward 0.6800 on acceptance above the 0.6750 psychological mark. The next relevant resistance levels are aligned at the October 3, 2024, high of 0.6888 and the September 2024 high of 0.6942. Conversely, any retracements could test the initial support at the 21-day Simple Moving Average (SMA) at 0.6671, below which a deeper correction will open toward the 0.6600 mark.
Frequently Asked Questions
Some frequently asked questions about the Australian Dollar include:
- What drives the Australian Dollar? The Australian Dollar is driven by the level of interest rates set by the Reserve Bank of Australia, the price of Iron Ore, the health of the Chinese economy, inflation in Australia, its growth rate, and Trade Balance.
- How does the Reserve Bank of Australia influence the Australian Dollar? The RBA influences the Australian Dollar by setting the level of interest rates that Australian banks can lend to each other.
- Why is the Chinese economy important for the Australian Dollar? The Chinese economy is important for the Australian Dollar because China is Australia’s largest trading partner, and the health of the Chinese economy affects demand for Australian exports.
Conclusion
In conclusion, the Australian Consumer Price Index (CPI) is an important indicator of inflation, which can affect the interest rates set by the Reserve Bank of Australia (RBA) and the value of the Australian Dollar (AUD). The AUD is affected by several factors, including the level of interest rates, the price of Iron Ore, the health of the Chinese economy, inflation in Australia, its growth rate, and Trade Balance. Understanding these factors can help investors make informed decisions about trading the AUD/USD pair.
