The Australian Dollar, nicknamed the Aussie, dropped over 100 pips against major currency pairs during the Asian trading session which took plenty forex traders by surprise. The reason behind the drop came from two economic reports which were released; one out of Australia which took a look at inflation on the consumer front and one out of China which gave another snapshot of the manufacturing sector in the form of the PMI report.
The Australian CPI, which stands for consumer price index and measures inflationary or deflationary pressures in the consumer sector, was reported at 0.6% for the first quarter on a quarterly comparison while it rose 2.9% annualized. Economists expected those figures to show a quarterly increase of 0.8% and an annualized read of 3.2%.
Forex traders took profits as the slower than expected inflation will give the Reserve Bank of Australia more time before it will be forced to raise interest rates. The strong recovery in Australia as well as the tremendous improvement in the labor market have increased speculation that the RBA may increase interest rates this year. This speculation has added to the recovery in the Australian currency.
Adding to the selling pressure in the Australian Dollar was the PMI report out of China which showed a fourth consecutive month of contraction. Australia depends heavily on commodity exports and a slower Chinese economy means less demand for commodities and therefore impacts the Australian economy as well as the Australian Dollar negatively.
Today’s drop in the Australian Dollar provided some great entry opportunities for all traders who were seeking buying opportunities. It is expected that the Australian Dollar will resume its advance and sell-offs should be used to add to existing long positions or enter new long positions. Long term traders may see the return of parity in the AUDUSD before 2014 comes to a close.