By David Liu,

THE TAKEAWAY : Q3 Producer prices weaker > RBA may relax tightening > AUD spikes lower

Australian producer prices fell from its recent Q2 peak as raw materials costs declined sharply as the global recovery slowed. However, the Australian dollar and major risk currencies gained against the US dollar as risk appetite climbed higher in early Asian trading on hopes for the EU to resolve its debt crisis by Wednesday.

EVENT

ACT

EXP

PREV

Producer Price Index Q3 (YoY)

2.7%

2.9%

3.4%

Producer Price Index Q3 (QoQ)

0.6%

0.8%

0.8%

A breakdown of third quarter producer prices showed a considerable decline in crude and intermediate materials. Intermediate materials prices used by Australian businesses grew 0.1% from the Q2 compared to 1.8% previously from Q1 to Q3, while crude materials rose 0.1% compared to 2.8% previously. This decline is most likely due to demand for energy and base metals falling as the global economic recovery unhinged as the US remains sluggish and China actively trying to cool its economy. Producer prices represent the cost of goods paid by manufacturers, and is loosely correlated with consumer price indices.

Australian Producer Price Index. Data Bloomberg.

The Australian dollar spiked down immediately across all pairs after the weaker report as traders saw a greater possibility of more dovish commentary from the RBA as prices slowed. However in early Asian trading, the Aussie remains tied to overall risk appetite. Although this weekend’s EU summit failed to come up with a comprehensive plan to solve its debt crisis and to prevent contagion, US equity futures are slowing regaining ground. At the time of writing, S&P500 futures are lower by 0.259%, climbing from -0.545%, while the Australian dollar has shed 0.350% against the US dollar since the start of the trading session.

AUDUSD 5 minute chart; vertical line indicates time of data release. Chart generated with FXCM Strategy Trader.
DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/market_alert/2011/10/24/Australian_Dollar_Carried_by_Sentiment_as_Producer_Prices_Fall_From_Q2_Peak.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.