Overview of the CPI / PPI in China
Early Friday, around 01:30 GMT, the market sees March’s headline inflation figures from China, namely the Consumer Price Index (CPI) and the Producer Price Index (PPI) ). The reading of China’s annualized CPI should drop from 5.2% to 4.8%, with the YoY PPI likely dropping to -1.1% from -0.4% earlier. On the basis of the MoM, the CPI brings the sliding forecast from + 0.8% to -0.4%.
With the numbers likely to represent the economic reaction during the coronavirus pandemic (COVID-19), AUD / USD traders will closely monitor the outcome. However, a stop in Australia, due to Good Friday, could limit the immediate reaction of the pair.
TD Securities follows the market consensus for optimistic readings:
The CPI should moderate to 4.7% YoY in March compared to 5.2% in February. The prices of foodstuffs, in particular pork, first due to the African swine flu, then to supply constraints, have largely contributed to the rise in inflation in recent months. Pork prices increased at an annual rate of 135% y / y in February. We expect some decline, as indicated by falling prices for agricultural products. Reducing disruptions in the food supply chain is also expected to help ease inflationary pressures. Weaker demand will also cap the CPI, which will likely cause the CPI to drop about -0.9% per month.
How could this affect AUD / USD?
While the COVID-19 pandemic is likely to keep inflation data under pressure, indicating an immediate decline, any surprise upside in the numbers will be enough to intensify the pair’s dominant run-up.
Technically, the 50-day SMA near 0.6387 becomes the main upward barrier which keeps the doors of the new rise towards 0.6400. Alternatively, sellers will look for entries below the late March high of 0.6215.
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About China CPI
The Consumer Price Index is published by the National Bureau of Statistics of China. It is a measure of changes in retail prices within a representative basket of goods and services. The result is a comprehensive summary of the results from the urban consumer price index and the rural consumer price index. The purchasing power of CNY is driven by inflation. The CPI is a key indicator for measuring inflation and changes in purchasing trends. A substantial increase in the consumer price index would indicate that inflation has become a destabilizing factor for the economy, which could prompt the People’s Bank of China to tighten monetary policy and the risk of fiscal policy. Generally, a high reading is considered positive (or bullish) for the CNY, while a low reading is considered negative (or bearish) for the CNY.
About China PPI
The producer price index published by the National Bureau of Statistics of China is a measure of the producer inflation rate. It captures the average price changes received by Chinese domestic producers of primary products at all stages of processing (raw materials, intermediate materials and finished products). Changes in the PPI are widely regarded as an indicator of commodity inflation. If the increase in the producer price index were excessive, this would indicate that inflation has become a destabilizing factor in the economy. The People’s Bank of China would tighten the risk of monetary and fiscal policy. Generally, a high reading is considered positive (or bullish) for the CNY, while a low reading is considered negative (or bearish) for the CNY.