AUD/USD: We can expect high volatility around CPI data

The market is bearish AUD/USD and today’s CPI data could determine whether it stays that way. The market is writing in around a 40% chance of an imminent rate cut and with all other global central banks (bar perhaps the RBNZ) in ‘easy’ mode, any lower than expected ‘weighted mean’ CPI would certainly reinforce the rate-cut view.

As usual I’m tending towards the contrarian view and with the market already sitting quite short I see more risk of a nasty short-covering squeeze on a higher number. Even if we do get a lower number, recent lows at .7850 should attract profit takers.

I’d suggest a volatile 50 pip range between .7920/.7970 for this morning’s pre-CPI trade. One way or the other, we should see some bigger moves after 11:30 Sydney time.

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