ATFX Forex: Australia's Q1 CPI annual rate drops significantly, AUD appreciation trend continues
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According to data from the Australian Bureau of Statistics, the latest annual CPI rate for the first quarter was 3.6%, a significant drop of 0.5 percentage points from the previous 4.1%, but still higher than the expected 3.5%. Historically, since reaching a peak of 7.8% in the fourth quarter of 2022, Australia's quarterly annual CPI rate has maintained a steady downward trend. By the first quarter of this year, the cumulative decline over six quarters was 4.2%, averaging a drop of 0.7 percentage points per quarter. The current decline of 0.5 percentage points, while substantial, remains below the average.
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After the CPI data release, within a 30-minute period, AUDUSD rose rapidly, with the market price increasing from 0.6498 to 0.6525, and reaching a peak of 0.6530 in the second half-hour K-line, a cumulative gain of 32 standard points. The appreciation of the Australian dollar suggests that market participants viewed the CPI data as bullish for the AUD, with the underlying logic tied to the Reserve Bank of Australia's monetary policy.
The continued decline in Australia's quarterly inflation rate indicates that high inflation is gradually easing. Based on the 2% moderate inflation target, Australia is expected to achieve its inflation goal in about six months. For the Reserve Bank of Australia, the declining inflation rate means that the current restrictive high-interest-rate policy is no longer appropriate, and the first rate cut of the year may become inevitable. Logically, higher odds of a rate cut should be bearish for the AUD, so why did AUDUSD surge after the data release? The reason is that while the annual CPI rate dropped significantly from the previous reading, it remained above the market expectation of 3.5%. The expected decline was not met, meaning inflation will take longer to return to a reasonable range, hence the AUD's appreciation.
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In addition to quarterly CPI data, the Australian Bureau of Statistics also releases monthly CPI figures. The latest data shows that Australia's unadjusted annual CPI rate for March was 3.5%, higher than both the previous and expected 3.4%. Historically, over the past four months, Australia's monthly annual CPI rate has remained in a sideways trend, with only a slight uptick in March. If Australia's inflation rate finds support around 3.4%, the Reserve Bank of Australia's willingness to cut rates will significantly decrease, while its inclination to maintain restrictive high-interest rates will rise. This is because a 3.4% inflation rate is still above the 2% target, suggesting that restrictive high-interest rates have not fully curbed inflation.
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The chart above shows the hourly trend of AUDUSD. The last 50+ K-lines exhibit an expanding megaphone pattern. The most recent six K-lines have retreated from the upper R-line, with the market price crossing the middle line, potentially finding short-term support. However, the medium-term trend of moving from the upper R-line to the lower S-line remains unchanged. The second support level appears at the S-line's 0.6461 (slowly rising over time), where the market is expected to find effective support.
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