Henry Liu
Former FPA Special Consultant
- Messages
- 473
Our plan to trade today’s CPI release out of Australia will be to look for opportunities for entry if we get a surprise in this release, here is the current forecast:
9:30pm AU CPI q/q Forecast 1.0% Previous 0.9%
ACTION: AUD/USD BUY 1.2% SELL 0.7%
The Trade Plan
Here is the plan, if we get a better than expected CPI data, we should see an instant appreciation of AUD by at least of 40 pips within the hour, but if we get a worse than expected number, AUD should drop as traders will probably feel uncertain over whether or not RBA will hike rate during the next meeting, therefore we should expect the market to consolidate. Of course, the deviation that I am looking for must be at least 0.2~0.3%, or I will skip the after news trade…
On a minimum release of 1.2%, I would buy AUD/USD after a decent retracement. If we get a 0.7% or worse release, I'd SELL AUD/USD immediately, I would consider a spike trade on a worse than expected release as recent gains in the AUD is screaming for a strong correction.
For more information on my trading methods, please read:
Henry Liu's Trading Methods
The Market
The quarterly CPI release is showing that Australia is facing rise in inflation, and if this number surprises to the upside, we could see demand for AUD return to the market, at least temporarily. RBA has paused rates hikes for several meetings and with a surprise higher release expectation for further rate hike could return.
In the political front, RBA Stevens may hurt Labor Prime Minister Gillard's bid if RBA hikes rate next Tuesday; however, with China's demand for commodities on the rise (at least based on present data), and record low unemployment rate, RBA may not have a choice but to resume rate tightening cycle if today's CPI release for the quarter shows stronger than 1.2%.
Current Overnight Swap Index is pricing in about 25% of a rate hike for next week, however, if the release shows that Australia's economy is heating up faster than expected, sentiment should change for AUD.
On the other hand, with AUD/USD currently above the 0.90 level, consolidation is long overdue. If CPI release shows that the economy is leveling off, or 0.7% or less, the long-term trend for the AUD could also change from neutral to slightly bearish as it would take a lot of momentum & optimism to keep AUD/USD trading at the current level.
Additional Thoughts
Inflation could be a real concern for Australia as unemployment drops and supplies for skilled workers also drop, wages gain will be the next step as long as the mining boom remains active. This will add pressure to RBA for further rate hikes, but at the same time, RBA is also considering its bubble economy that's highly dependent of China's commodity demands. If China's growth cools down or worse yet, government intervenes, then the entire house of cards will come crashing down, and the higher the interest rate is, the harder the economy will fall.
Pre-News Consideration
We may get a chance to go LONG on AUD/USD on the expectation of a strong CPI release. However, with AUD/USD trading at the top of the range, it may be best to sit this one out, but if you are looking for direction on the AUD/USD for the short-term until the CPI release, I'd bet on going LONG after it dips to support areas based on 4 hour chart.
Definition
“The Consumer Price Index (CPI) measures the rate of inflation (i.e., the rate of price changes) experienced by consumers when purchasing goods and services. A rising trend has a positive effect on the nation’s currency. The primary objective of the central bank is to achieve price stability; when inflation rises above an annualized rate of approximately 2%, they will respond by raising interest rates to bring prices down. Higher interest rates attract foreign investment, thus increasing demand for the nation’s currency. CPI is one of the most closely watched indicators and will usually have a high impact upon release.”
Click here for historical chart and data on AU CPI q/q
Thanks,
9:30pm AU CPI q/q Forecast 1.0% Previous 0.9%
ACTION: AUD/USD BUY 1.2% SELL 0.7%
The Trade Plan
Here is the plan, if we get a better than expected CPI data, we should see an instant appreciation of AUD by at least of 40 pips within the hour, but if we get a worse than expected number, AUD should drop as traders will probably feel uncertain over whether or not RBA will hike rate during the next meeting, therefore we should expect the market to consolidate. Of course, the deviation that I am looking for must be at least 0.2~0.3%, or I will skip the after news trade…
On a minimum release of 1.2%, I would buy AUD/USD after a decent retracement. If we get a 0.7% or worse release, I'd SELL AUD/USD immediately, I would consider a spike trade on a worse than expected release as recent gains in the AUD is screaming for a strong correction.
For more information on my trading methods, please read:
Henry Liu's Trading Methods
The Market
The quarterly CPI release is showing that Australia is facing rise in inflation, and if this number surprises to the upside, we could see demand for AUD return to the market, at least temporarily. RBA has paused rates hikes for several meetings and with a surprise higher release expectation for further rate hike could return.
In the political front, RBA Stevens may hurt Labor Prime Minister Gillard's bid if RBA hikes rate next Tuesday; however, with China's demand for commodities on the rise (at least based on present data), and record low unemployment rate, RBA may not have a choice but to resume rate tightening cycle if today's CPI release for the quarter shows stronger than 1.2%.
Current Overnight Swap Index is pricing in about 25% of a rate hike for next week, however, if the release shows that Australia's economy is heating up faster than expected, sentiment should change for AUD.
On the other hand, with AUD/USD currently above the 0.90 level, consolidation is long overdue. If CPI release shows that the economy is leveling off, or 0.7% or less, the long-term trend for the AUD could also change from neutral to slightly bearish as it would take a lot of momentum & optimism to keep AUD/USD trading at the current level.
Additional Thoughts
Inflation could be a real concern for Australia as unemployment drops and supplies for skilled workers also drop, wages gain will be the next step as long as the mining boom remains active. This will add pressure to RBA for further rate hikes, but at the same time, RBA is also considering its bubble economy that's highly dependent of China's commodity demands. If China's growth cools down or worse yet, government intervenes, then the entire house of cards will come crashing down, and the higher the interest rate is, the harder the economy will fall.
Pre-News Consideration
We may get a chance to go LONG on AUD/USD on the expectation of a strong CPI release. However, with AUD/USD trading at the top of the range, it may be best to sit this one out, but if you are looking for direction on the AUD/USD for the short-term until the CPI release, I'd bet on going LONG after it dips to support areas based on 4 hour chart.
Definition
“The Consumer Price Index (CPI) measures the rate of inflation (i.e., the rate of price changes) experienced by consumers when purchasing goods and services. A rising trend has a positive effect on the nation’s currency. The primary objective of the central bank is to achieve price stability; when inflation rises above an annualized rate of approximately 2%, they will respond by raising interest rates to bring prices down. Higher interest rates attract foreign investment, thus increasing demand for the nation’s currency. CPI is one of the most closely watched indicators and will usually have a high impact upon release.”
Click here for historical chart and data on AU CPI q/q
Thanks,
Last edited by a moderator:
but man this get confusing AU CPI in NY time
