AUDUSD gets a kicking as core CPI drops to the lowest since 1999

It doesn't take much to change the markets mind on something and last night's Aussie inflation numbers have done just that.

Here's the rate expectations before the CPI data;

Rate hike probabilities pre-CPI data

Here's the numbers today;

Rate probabilities post-CPI data

Naturally the aussie dollar looks like kanga road kill right now but as we hover over 0.7600, is the 150 odd pip drop the end of the story, or is there more downside to come?

The trimmed mean CPI has not been looking good for a while now and if the RBA had an itchy trigger finger over cutting rates before, that finger will be twitching even more with the core at the lowest since 1999.

Aus trimmed mean CPI y/y

Even though the trend has been lower, last nights report would have been a bit of a shock. The numbers could very well mean that the RBA start moving to a more dovish stance than they would have had the numbers mildly missed. The flip side is that may see this as a one off anomaly and will wait to see if any other indicators show signs of increased falling prices.

For me the trend in the core numbers is one they can't ignore anymore.

So what of AUDUSD?

AUDUSD H4 chart

We can see why it's finding decent support at 0.7600 but right now it's looking inevitable that it breaks.

While there's minor levels in between, it's a case of the big figures holding the best support. The 0.7280/7300 level was particularly strong resistance and that's where I would expect the really strong support to come in. It all depends on how the RBA handles their next meeting. While the market is now pricing in a bigger chance of a cut, it will be the message that comes with it that will be important. They're never one's to look a gift horse in the mouth when it comes to talking down the currency. so they might jump all over this move to get maximum effect from it.

Form here, longs look the most risky trade and we should expect rallies to get hammered quite hard. Look to go with any downside breaks to either get in, or to add to shorts, whilst also using the lower levels to take some off the table on a first test.