AUD/USD consolidates around 0.76 ahead of China PPI release

AUD/USD is flat lined around 0.76 handle in Asia as traders await China data, which is expected to show the producer price index (PPI); also known as factory gate prices; rose 5.5% y/y in June.

The consumer price index (CPI) is seen falling 0.1% m/m. That amounts to an annualised rise to 1.5%.

Focus on PPI

A better-than-expected PPI would boost reflation trade, thus leading to a higher Aussie and vice versa. Moreover, the PPI bottomed out/turned positive last year in July/August, leading to a rise in inflation across the globe. The global reflation trade was a result of a surge in Chinese PPI.

Meanwhile, a weak CPI may also mean the PBOC could run easy monetary policy. The resulting ‘risk-on’ trade may strengthen the Aussie as well.

Watch out for the reaction in the Aussie bond markets following the China inflation data release. As of now, the 10-year Aussie bond yield is up 1.9 basis points at 2.79%.

AUD/USD Technical Levels

A break above 0.7624 (10-DMA) would open up upside towards 0.7679 (Mar 30 high) and 0.77 handle. On the downside, breach of support at 0.7593 (1-hour 50-MA) could yield a sell-off to 0.7571 (July 5 low) and 0.7550 (100-DMA).