AUDJPY boost after CPI beat

As debate over whether equities have entered a new bull market or rather experiencing a bear market rally continues, trader attention is turning to economic data to help provide some clarity on the dispute.

While the COVID-19 pandemic is still only relatively fresh compared to other crisis periods, its impact on crucial economic data including growth and employment has been immediate, with very few positive surprises to buoy the mood.

The release today of Australian inflation data for the March quarter has proved to be one of those few exceptions. Headline inflation rose by 0.3% over the quarter vs expectations of 0.2% while the annual rate of inflation ticked up to 2.2%, vs expectations of 1.9%.

Core inflation as measured by the RBA’s preferred measure, the “trimmed mean” rose by 0.5%, above market expectations of 0.3%, with the annual rate rising to 1.8%.

In more normal times today's CPI beat would be welcome news to the RBA and provide reassurance that it's ultra-low interest rate policy settings have helped guide inflation back towards its inflation target band.

However, with the full impact of COVID-19 still to be felt in the June quarter, a result of lower fuel and childcare prices along with higher unemployment, the RBA can take some comfort that the expected -2% fall in the June quarter is at least coming from a higher starting point.

Today’s CPI data and better risk sentiment during the Asian time zone have assisted the AUDJPY cross rate trade to an 8 week high near 69.65.

 Not far above here sits a dense layer of horizontal resistance between 69.95 (the August 2019 low) and 70.50 (the “flash crash” low from January 2019). For good measure, it also includes the 61.8% Fibonacci retracement of the 2020 sell-off at 70.16.

Should a bearish daily reversal candle form at or near this resistance zone, it would be viewed up as the setup for a short AUDJPY trade, looking for a pullback initially towards support at 67.70, before 66.50.