AUD/USD CPI and AUD Pairs

Australia CPI last 0.4 Quarter V Quarter and 1.7 year over year is expected. The point at 0.4 is perfect while 1.7 is viewed as coming down a notch.

For  Core at 0.4 is derived from the range between a low of 0.36 to highs at 0.47. The average of target prices is found at 0.41 and 0.40 to factor the Core prices. Both look perfect.  If Core is found from  0.36 to 0.47 then headline year over year factors to a range from 1.44 to 1.86 with an average at 1.60 to 1.64.  Overall, I see 0.4 and 1.60’s as the final release.

Why averages are considered as final results is because Australia Trims their means in relation to their CPI release, its traditional Australia and a unique methodology because the Trim Means factor between Trade Ables and Non Trade Ables. Reason why Australia allows for a medium term Inflation target of 2 to 3% is because Inflation hovers from 2 to 3% inside its Trade Ables V Non Trade Ables.

Current quarterly changes in Trimmed means from September 2015 to June 2016 runs from lows at 0.2 to 0.6 highs. Core at 0.4 is again found direct center. What drives Australia Inflation and why lower rates is due to low and lower wages, falling commodity prices ( 20% drop in Australia over 2 years), and what Lowe stated in his first speech, excess economic capacity. What Lowe refers for Australia year over year to June 2016 is the Output Gap based on the latest OECD number is running at negative 1.76%. Supply of Goods outweighs the demand and is traditional deflationary. Low Inflation is the result of economic slack brought on based on Lowe, Debt overhang from the 2008 crisis. Confirmation of self inflected wounds from stimulus yet Australia historically is never the cause but traditionally rides through the changes since its founding in the early 1900’s.

Why Inflation is a pertinent and  enormous number for Australia is because CPI in relation to Trade Ables and Non Trade Ables explains the vast majority of the current Australia economic environment. Again to quote Lowe, “Australian exports are down 35% over the past 5 years because Australia Commodity prices dropped 50%.”. Inside the Trade Ables V Non Trade Able relationship is found this export deviation and again its an explanatory factor to current CPI as lower exports is a drag on CPI, GDP and the overall Demand /Supply relationship.

AUD/USD big break lines below current 0.7647 are located at 0.7596 and 0.7594. Both lines held for many months. Until both lines break, AUD rises. Overbought for today begins at 0.7665 while the major break to go substantially higher is 0.7801. AUD/USD overall is middle range but caught between the variations of its cross pairs.

AUD/CHF remains overbought from lines at 0.7400. Current 0.7602 begins overbought from 0.7621 and more overbought as price rises.

AUD/EUR is another far overbought currency pair and its price should be located at easily far lower 0.6900’s. Why overbought for extended periods is because EUR/AUD is far oversold.

AUD/CAD should be located between 1.0061 to 1.0102 to relieve overbought conditions.

 

Brian Twomey, Inside the Currency Market, btwomey.com

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