Can RBA speech and CPI data upset the Aussie’s run

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The Australian dollar remains happily above 79 cents this morning sitting at 0.7935 despite some gains in the US dollar overnight.

“The Aussie dollar pulled back from its overnight high around 0.7970, but it remains in a very strong solid position,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.

He added the Aussie may come under pressure today due to two major events that could be ‘materially market moving”.

“It’s going to be a big day for the Aussie. We are looking at mega couple of hours between 11.30am and 1.30pm today – with the CPI data and RBA Governor Lowe’s speech – and these could impact the Aussie dollar,” McKenna said.

“It could be a day of reckoning for the Aussie as we see some signs of the US dollar bulls plus the RBA speech today,” he added.

According to him, that two-hour window is going to be huge for the Aussie dollar, perceptions about the path of interest rates, and the outlook for the economy.

“So, it is also a materially market moving window,” McKenna said.

The market is looking for headline CPI to print 0.4% following on from the first quarter’s 0.5% rise. That would lift year on year headline inflation from 2.1% to 2.2% for Q2.

“So far so good, inflation to hold inside the RBA’s 2-3% band,” McKenna said.

However, he pointed out that the market is expecting RBA’s favoured measure of inflation – the Trimmed Mean – to print 0.5% which would see the year-on-year rate dip to 1.8% from the first quarters 1.9% level.

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“Potentially not so good for the Aussie if forecasters are right,” McKenna said.

Based on previous events, the Anika Foundation (where RBA Governor Low will speak today) lunch was usually the most important speech of the year – the most influential, scene setter – for Lowe’s predecessor Glenn Stevens.

“I wonder if Governor Lowe will follow this lead. If he does it is going to be hard for him to temper the emerging excitement about the Australian economy at the moment,”

“The focus on headwinds has given way to a recognition the outlook the NAB business survey, and jobs market points to is suggestive of the RBA’s own bullish forecasts for growth,” McKenna said.

He added that: “Lowe needs to send a clear signal the inflation outlook and low wages growth give the RBA plenty of room to leave rates where they are. And ultimately he has to hope the US dollar will turn around.”

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