For the sixth consecutive quarter, the Australian headline CPI has been a disappointment. The 2% target set by the RBA seems to be a high hurdle to overcome as last quarter’s data came in lower at an annualized rate of 1.9% below the expected 2.2%. This level was also below the 2%-3% band the central bank sees as ideal. The core inflation on the other hand grew at 0.5% matching everyone expectations. What should be a worry though is the disappointing pace at which this rate has been growing despite the record low interest rates. Remember last weak deputy governor Debelle was quick to pour cold water on expectation of a rate hike given the strong global deflator forces which are damping any price escalation and the particular strong Aussie which will further add pressure on imports. According to the RBA, as long as inflation remains low, there is no need to hike rate as be in tandem with other economies while at the same time, they are wary of cutting rates further. Cutting rates means pumping the dangerous housing bubble in Melbourne and Sidney. So, this means taking advantage of the less extended NZD which have a positive correlation with the Aussie and for good reasons.
Technically, as you can see in the daily chart, the market was overextended when the markets closed on Monday. It closed above the upper BB and with a bear candle confirmation on Tuesday, it concluded the three bar bear candle formation. Further, there is a sell signal in the daily chart of the stochastics. Also, in the monthly chart, prices are turning at multiyear support turned resistance at 50% Fibonacci level from 2014-2015 high low.
Strategy is to trade as follows:
Stop Loss: 0.7480
Take Profit: 0.7210-immediate support. July 2017 lows
We also have Fed rate decision later in the NY session but it is largely expected to be at 1.25%. Watch out for New Home Sales-expected to expand at 615K and also UK GDP Growth in the London Session.
Have a good trading day.