Halister News

(Bloomberg) -- Australia’s 2Q CPI data will need to miss median est. by a wide margin for Aussie to weaken significantly further as mkt has already priced in further RBA easing, according to Bloomberg strategist Michael Wilson.

• 1-year OIS is at 1.43% compared with RBA’s cash rate of 1.75%, indicating investors have already priced in more than one rate cut from August
• 2Q CPI probably rose 1.1% y/y, down from an already modest 1.3% prior, according to median est. in Bloomberg survey
  • Forecasts range from 0.8% to 1.5%; data due tomorrow 11:30am Sydney time
• Aussie’s resilience is illustrated in its price action as it trades closer to YTD high of 0.7835 reached in April even after weak 1Q CPI, compared to YTD low of 0.6827 in Jan.
  • Since then, wage growth after inflation continued to improve while RBA confirmed easing bias; if not for the relatively elevated AUD, inflation may have already started to revert to RBA’s target of 2-3%
  • AUD/USD is only ~100 ticks lower from 1Q 2015 levels even as inflation missed RBA 2-3% target band for past six quarters
• A test of the 0.7412 50-DMA from current levels of 0.7485 is possible if 2Q CPI prints below worst estimate, allowing RBA to signal further cuts
• NOTE: RBA still cut rates after 1Q CPI even as unemployment rate declines
• NOTE: Michael G. Wilson is an FX strategist who writes for First Word. The observations he makes are his own