Australian monthly CPI and what it does to AUD in the Asian session

[Fairman]

Australian monthly CPI and what it does to AUD in the Asian session

Australia now publishes a monthly CPI indicator alongside the traditional quarterly release. The monthly number gets less attention than the quarterly one, but it can still move AUDUSD, especially when it surprises in the same direction as recent data.

It's released in the Asian morning, which for those of us in Europe means very early or overnight. Liquidity is lower than during London, but AUD is at its most active in the Asian session, so the reaction is usually orderly compared with a thin market.

The monthly figure is noisier than the quarterly one because some items are only measured every few months. Markets know this, so a surprise in the monthly number tends to move AUD less than a similar surprise in the quarterly release. The trimmed mean and the measure that excludes volatile items are often what traders look at more closely.

What I do with it: check the release before the London session, see how AUDUSD reacted, and whether the move held through the rest of Asia. If it held, I treat the direction as relevant for the London morning. If it faded, I assume the market shrugged it off.

I don't trade the release itself from Europe. It's not worth the early start for a release that often gets a modest reaction.

[Fairman]

How the number fits with the RBA's last statement matters a lot. If the RBA has been saying it needs to see inflation coming down and the monthly number shows the opposite, the reaction can be bigger, because it changes expectations for the next meeting. If the number confirms what the RBA has been expecting, it's mostly ignored. Reading the RBA's latest statement or minutes, even quickly, gives context for whether a monthly surprise matters. That's more useful than the raw size of the surprise on its own. A soft print after hawkish talk can do the same in reverse, so reading the last statement first gives you context for the number.

[Fairman]

The AUD crosses can be a cleaner way to see the reaction. If AUDUSD moves on the CPI but AUDJPY and AUDNZD don't, the move might actually be about the US dollar in that moment. If all the AUD pairs move together, the data is driving it. NZD is the other side of AUDNZD, and since New Zealand data doesn't usually land at the same time, AUDNZD is a fairly pure read on AUD sentiment right after Australian data comes out. Watching two or three AUD pairs side by side for the first few minutes after the release usually makes the source of the move clear enough.

[FXS Prop Desk]

The monthly indicator tends to move AUD more when it confirms a trend in recent data. A surprise in the opposite direction often has a smaller effect, since the quarterly number still carries more weight.

For scalpers in Europe, the release comes during the night or early morning, so the reaction is usually over before London opens. It still sets the tone for AUD in the European session, so checking the result before trading AUD pairs is useful.

[Fairman]

The trimmed mean figure in the monthly CPI often matters more to the RBA than the headline, since it strips out the most volatile items. If the headline jumps because of fuel or holiday prices, but the trimmed mean is steady, the market might fade the initial move once traders look at the detail. I'd wait a minute or two after the release to see both numbers before trading. The first reaction is often to the headline alone, and the second, slower move reflects the underlying measure the RBA actually watches.

[Fairman]

How does the monthly CPI fit with the quarterly CPI? Australia releases both, and the quarterly figure is still the more complete measure. Some months in the monthly series have more complete data than others, depending on which items are updated that month. A monthly figure that's out of line might get less weight if it's a month with limited coverage. Knowing which month of the quarter it is, and how complete the data is, helps judge whether a surprise is likely to move RBA expectations or be treated as noise.