Australia’s inflation expected to accelerate according to forecasts

In tomorrow’s early Asian session, Australia is scheduled to deliver its latest year on year CPI rate for Q4 and Aussie traders are glued to their seats, awaiting for the results. According to estimates, inflationary pressures in Australia are expected to rebound to 7.5%, rising from their brief fall to the 7.3% level, recorded in the previous quarter. Should that be the case and the results confirm the uptick to the 7.5% level, we may see the AUD gain some strength against the dollar, as that may entice the RBA to reconsider ramping up its monetary tightening efforts in order to bring inflation back down to the 2% target level. Currently the AUD OIS implies a 62% probability for a 25 basis points hike in the next meeting. New Zealand is also expected to provide an update on the inflationary front later today, however, according to estimates the year-on-year CPI rate for Q4 is expected to cool to 7.1%, down from the 7.2% rate recorded in the previous quarter. Should the actual rate meet the expectations we may see slight weakness in the NZD. Moving on to continental Europe, Germany, France and the Eurozone as a whole, are scheduled to deliver their respective preliminary PMI figures for January. More specifically, of particular importance will be the preliminary Manufacturing PMI figure from Germany, which according to estimates is expected to showcase an improvement on the manufacturing front and the results could bolster bets for a stronger EUR. Similarly, France’s preliminary Services PMI is also foreseen to improve could provide further support to the common. Yesterday, the head of the ECB, President Lagarde, delivered a speech and practically confirmed expectations that the central bank is to continue forth with more rate hikes to tame inflation. “We have made it clear that ECB interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive and stay at those levels for as long as necessary,“ stated the president, delivering once again a hawkish message with conviction. Bundesbank’s Nagel sounded optimistic in his comments and noted “we will bring inflation back to 2% target without causing a recession”, while ECB member Klass Knot stated that it is “too early to tell” whether the central bank could slow down its hiking pace. Lastly, we travel further west towards the United States where the dollar will face its latest challenge ahead of a crucial GDP print of Thursday, determining in a sense whether it will hold its fresh lows or extend its fall to levels once seen before in April of 2022. According to the preliminary Manufacturing PMI data for January, the US manufacturing activity is expected to remain in contraction territory and decrease further to 46.0 level compared to the 46.2 reading of the prior month. Should the actual figure meet expectations we may see to dollar facing more headwinds.

EUR/USD managed to consolidate and rise from the newly formed 1.0860 (S1) support level. We hold a bullish bias for the pair. Should the bulls reign over, we may see the pair breaking the 1.0980 (R1) resistance line and head to the 1.1080 (R2) level. Should the bears take charge we may see EUR/USD breaking the 1.0860 (S1) support line and aim for the 1.0740 (S2) support level.

AUD/USD rose yesterday and is currently gearing up to break above the 0.7043 (R1) level. We hold a bullish bias for the pair as the RSI indicator registers a reading of 65, showcasing bullish sentiment in favour of the pair. Should the bulls be in charge we may see AUD/USD breaking the 0.7043 (R1) line and aim for the 0.7125 (R2) resistance level. Should the bears take over, we may see the return to the 0.6880 (S1) support line.

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Today we would also like to highlight Germany’s preliminary Gfk Consumer sentiment indicator for February alongside Eurozone’s preliminary Composite PMI figure for January. Furthermore, we note the release of both the preliminary Services PMI figure as well as the CBI Trends for industrial orders from the United Kingdom.