AUD bulls wait on inflation data

26 July, 2017

AUD bulls wait on inflation data

The Australian dollar is certainly popular with the markets at present after the recent strong rises in the AUDUSD. As a result, there is a lot of talk today about the inflation rate data due out shortly. Currently when it comes to the Australian economy and the case for further interest rate rises inflation is the missing ingredient. The Reserve Bank of Australia believes that inflation will lift in the later part of this year to around 2% which is a good target to have, but if we see a jump earlier it could certainly be a boost to the upside for the AUD. One thing that will be weighing on this figure will be low fuel prices which have had an impact globally, and also the high AUD which won't help at all when it comes to imports. However, the trimmed mean forecasted CPI of 1.8% is a slight fall from the 1.9% from the last reading, but this will be the one to watch as the RBA pays the most attention to it. If we saw a reading of 1.9%+ I would anticipate some strong movements in the AUDUSD.

On the charts the AUDUSD has been trending upwards recently, but it has taken a breather in the last few days and as USD strength was slightly better today. Certainly the market is looking for the next move and inflation will provide it most likely. If we do see a weaker result I would expect to see the AUDUSD shift down to the 38.2 fib level and target the 0.7761 support level, and it would be knee jerk reaction given the recent market volatility. In the event we do see strong inflation and continued enthusiasm for the AUD, the climb higher would likely target that key 80 cent level which is always a hard one to crack. After that I would expect traders to target the 50.0 fib level around 0.8154.

Oil markets have also been awoken by OPEC recently but also by private inventory data out today. While OPEC is certainly trying to stoke the flames with further production cuts, it's the drawdown in the US which has got the bulls really moving. With a large move of -10.23M barrels the market has jumped on this news and rushed higher. There will be as a result of this very large expectations on tomorrows US crude oil inventory data to show a stronger drawdown than the expected -3.0M barrels that has been forecast.

Oil on the charts has catapulted up in one of the strongest bullish moves seen in some time. It has cracked through resistance at 47.25 after today's announcement and is looking to really test the trend line in play. If we do see a strong drawdown tomorrow, it's very much plausible that the market may take it as a very bullish signal and look to target resistance at 49.99 and ignore the trend line all together. However, it's worth nothing that private data and the Department of Energy data don't always line up and hence why I have some reservations about expecting a large drawdown. In the event it's not aligned expect former resistance at 47.25 to be tested strongly by the market.

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