The Australian dollar is quiet but that looks set to change today

Photo: Oleg Nikishin/Getty Images

The Australian dollar tread water overnight with higher commodity prices offset by a renewed bout of US dollar strength following a lift in US bond yields.

Here’s the scoreboard as at 7.55am AEDT:

  • AUD/USD 0.7578 , -0.0001 , -0.01%
  • AUD/JPY 86.21 , 0.81 , 0.95%
  • AUD/CNH 5.1708 , 0.0099 , 0.19%
  • AUD/EUR 0.7061 , 0.0023 , 0.33%
  • AUD/GBP 0.6059 , 0.0015 , 0.25%
  • AUD/NZD 1.0452 , -0.0023 , -0.22%

Despite the recovery in the US dollar — something that kept the Aussie’s gains in check — Elias Haddad, senior currency strategist at the Commonwealth Bank, said that the “price action remained unconvincing with few new directional themes”.

Looking at the 5-minute chart below, the same could also be said for the AUD/USD.

AUD/USD 5-Minute Chart

Despite the lack of movement seen in recent trade, that all looks set to change with the release of Australia’s December quarter consumer price inflation (CPI) report at 11.30am AEDT.

Headline inflation is tipped to increase by 0.7% for the quarter, leaving the year-on-year increase at 1.6%.

Core CPI, also known as underlying, is expected to rise 0.5% over the quarter, leaving the year-on-year rate almost unchanged at 1.5%.

“We expect underlying Australian CPI inflation to pick up in Q4,” said Haddad, noting that higher food prices adds upside risks to the underlying inflation print.

“Faster underlying CPI inflation in Australia can support an upward adjustment to Australian interest rate futures in favour of a slightly stronger AUD/USD and AUD/NZD,” he adds.

The core CPI figure is highly influential on Australian interest rate expectations, hence movements in the Aussie. The headline CPI rate has also taken on increased prominence in recent quarters given greater scrutiny on inflation expectations from the Reserve Bank of Australia.

For those looking for further information before the inflation report arrives, this 10-second guide will bring you up to speed.

Outside of Australia’s inflation report, the data calendar is quiet, devoid of any potential market moving events.

In Asia, the only highlight comes from the release of Japanese trade data for December at 10.50am AEDT, and even it’s unlikely to generate much interest among traders.

As usual on quiet days in Asia, movements in the Japanese yen and Chinese yuan — often influential on the US dollar index in this timezone — will help to drive market movements, including in the Aussie.

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