Aussie Inflation Data Remains Mixed as Electricity Rebate Artificially Lowers CPI

Australian inflation increased at an annual pace of 3.5% in July, down from 3.8% in June, according to the Australian Bureau of Statistics. This was slightly above the 3.4% estimate, but much of the decrease was due to rebates on electricity prices, which artificially lowered the CPI. Despite this, rents, food, and gas prices rose, indicating underlying inflation pressures.

Markets have adjusted their expectations for a rate cut, now seeing December as a stronger possibility than November, with a 72% chance of a 25-basis point cut.

AUD/USD:

Data from retail traders shows 40.75% are in long positions, with a short to long ratio of 1.45 to 1. There has been a 2.06% increase in long positions since yesterday, but a 9.60% decrease from last week. Short positions have decreased by 2.21% since yesterday but increased by 5.80% from last week.

A contrarian view typically goes against crowd sentiment. With the majority of traders being short, this suggests that AUD/USD may continue to appreciate.

The current positioning, showing a reduction in net-short positions from yesterday but an increase from last week, results in a mixed trading outlook for AUD/USD.

BoJ Comments Reaffirm Hawkish Policy Stance

BoJ Deputy Governor Ryozo Himino reiterated that the central bank could continue to raise interest rates if inflation aligns with expectations. He emphasized monitoring financial markets with “utmost vigilance” following recent volatility. Governor Kazuo Ueda also confirmed the possibility of further rate hikes if inflation stabilizes around 2%.

USD/JPY:

Retail trader data reveals that 51.35% are in long positions, with a long to short ratio of 1.06 to 1. Long positions have increased by 5.09% since yesterday and 6.11% from last week. Short positions have decreased by 2.41% since yesterday and 3.07% from last week.

Adopting a contrarian view to the market, where traders are predominantly long, implies that USD/JPY may continue to decline.

The increase in net-long positions from both yesterday and last week, coupled with current sentiment, supports a bearish contrarian trading perspective on USD/JPY.