The Impact of Australian CPI (q/q) on the AUD: Forecast for January 28, 2025

The Consumer Price Index (CPI) is one of the most critical economic indicators influencing the Australian Dollar (AUD). The quarterly CPI (q/q) data, set to be released on January 28, 2025, will play a significant role in shaping the Reserve Bank of Australia’s (RBA) monetary policy stance and, consequently, the trajectory of the AUD. This article examines the potential impact of this release through technical and fundamental analysis, along with predictions for the upcoming data.

Fundamental Analysis

Understanding CPI (q/q)

CPI measures the average change in the price of goods and services purchased by households. As a key indicator of inflation, it directly influences the RBA’s monetary policy decisions.

• Higher-than-expected CPI: Indicates rising inflationary pressures, which may prompt the RBA to adopt a hawkish stance, strengthening the AUD.
• Lower-than-expected CPI: Suggests subdued inflation, which could lead to dovish policies, weakening the AUD.

Historical Performance of CPI (q/q)

1. Q3 2024:

   • Actual: 0.9%
   • Forecast: 0.8%
   • Impact: The higher-than-expected reading supported the AUD, as it hinted at persistent inflationary pressures despite the RBA’s tightening measures.

2. Q2 2024:

   • Actual: 0.6%
   • Forecast: 0.7%
   • Impact: A slight miss on expectations led to AUD weakness, with markets pricing in a potential pause in rate hikes.

3. Q1 2024:

   • Actual: 1.1%
   • Forecast: 1.0%
   • Impact: A robust inflation reading spurred speculation of more aggressive rate hikes, boosting the AUD.

Key Drivers for Q4 2024 CPI

1. Energy Prices:

   • Energy costs remained stable in Q4 2024 following a decline in global oil prices, potentially limiting upward inflationary pressures.

2. Wage Growth:

   • Wage growth accelerated to 4.1% in December 2024, fueling disposable income and domestic spending, which could contribute to inflation.

3. Housing and Rent Prices:

   • Rising housing costs in major cities, including Sydney and Melbourne, are likely to contribute positively to CPI growth.

4. Global Economic Factors:

   • Slowing growth in key trade partners, such as China, may have moderated demand for Australian exports, potentially dampening inflationary pressures.

Forecast for Q4 2024 CPI

• Consensus Estimate: 0.8%
• Bullish Scenario: A reading above 0.9% would signal persistent inflationary pressures, reinforcing expectations of further RBA rate hikes, which could strengthen the AUD.
• Bearish Scenario: A reading below 0.7% would indicate a slowdown in inflation, raising the likelihood of a dovish RBA stance, leading to AUD weakness.

Technical Analysis of AUD/USD

Recent Price Action

The AUD/USD has been trading in a consolidation phase over the past month, reflecting market caution ahead of key economic data.

• December 2024: The pair ranged between 0.6650-0.6800, supported by optimism over China’s reopening but capped by mixed domestic data.
• January 2025 (YTD): AUD/USD has hovered near 0.6730, with traders awaiting clearer direction from CPI and other economic indicators.

Key Technical Levels

1. Support:
   • Immediate support at 0.6700.
   • Strong support at 0.6650, coinciding with the 50-day moving average.
2. Resistance:
   • Immediate resistance at 0.6780.
   • Key resistance at 0.6850, aligning with the 200-day moving average.

Indicators and Patterns

• Moving Averages:
  • The 50-day MA is trending slightly above the 200-day MA, signaling a neutral to mildly bullish bias.
• Relative Strength Index (RSI):
  • RSI at 55, indicating balanced momentum but room for upside.
• MACD:
  • MACD histogram is slightly positive, reflecting mild bullish divergence.

Scenarios Based on CPI

1. Higher-Than-Expected CPI (>0.9%):

   • Impact: A stronger CPI would reinforce hawkish RBA expectations, boosting the AUD/USD.
   • Market Reaction: AUD/USD could test 0.6780, with potential to rally toward 0.6850.
   • Trading Strategy: Long AUD/USD positions with a target at 0.6850.

2. In-Line CPI (0.8%):

   • Impact: Limited market reaction, with the pair likely to remain range-bound.
   • Market Reaction: AUD/USD may continue consolidating between 0.6700-0.6780.
   • Trading Strategy: Range-bound strategies, buying near support and selling near resistance.

3. Lower-Than-Expected CPI (<0.7%):

   • Impact: Weaker CPI would dampen rate hike expectations, pressuring the AUD.
   • Market Reaction: AUD/USD could break below 0.6700, targeting 0.6650 or lower.
   • Trading Strategy: Short AUD/USD positions with a target at 0.6650.

Market Predictions and Insights

1. Short-Term Impact: The CPI release will likely trigger immediate volatility in AUD/USD, as traders reassess RBA policy expectations.
2. Medium-Term Trends: A persistently high CPI could solidify the RBA’s hawkish stance, supporting AUD strength. Conversely, subdued inflation may lead to a more cautious policy approach, pressuring the AUD.
3. Broader Forex Market Implications: The CPI’s impact on AUD crosses (e.g., AUD/JPY, EUR/AUD) will depend on global risk sentiment and relative monetary policies.

Conclusion

The Q4 2024 CPI report is poised to be a critical event for the AUD, with traders closely monitoring the data for clues about the RBA’s next move. While recent trends suggest steady inflation, risks remain, including global economic headwinds and domestic policy adjustments. As always, traders should remain vigilant and incorporate both technical and fundamental insights into their strategies to navigate the post-CPI volatility.

Disclaimer: This analysis is for informational purposes only. Forex trading involves significant risk, and past performance does not guarantee future results.