Author: Mr. Amar – Technical Analysts

The Consumer Price Index (CPI) measures household inflation and includes statistics about price change for categories of household expenditure. Annual CPI inflation increased to 3.5% in the December quarter, due to higher dwelling construction costs and automotive fuel prices. Trimmed mean annual inflation, which excludes large price rises and falls, increased to 2.6%, the highest since June 2014.

These increases are mainly driven by a clash between strong demand and COVID-disrupted supply chains. Shortages of building supplies and labor, combined with continued strong demand for new dwellings, contributed to price increases for newly built houses, townhouses, and apartments. Higher fuel prices are hitting customers directly and also through price increases for other goods and services.

The hotter-than-expected inflation print will likely serve as a tailwind for the Australian Dollar. That is because the Reserve Bank of Australia (RBA) may react in a hawkish manner given that the current rate is above the central bank’s 2 to 3% target range. AUD/USD was slightly higher on the day following the CPI print. The current price is set around 0.71600 which is used to serve both support and resistance. Analysts are waiting for any breakout movement, either bullish or bearish before any predictions could be made. Economists expect the RBA to change its forecasts and consider a rate rise later this year.