China’s CPI inflation misses expectation in May: What 1.2% mean for the Australian Dollar

What do China’s CPI and PPI data mean for the Australian Dollar?

The CPI is a key indicator to measure inflation and changes in purchasing trends. The YoY reading compares prices in the reference month to the same month a year earlier. Meanwhile, the PPI is a measurement of the rate of inflation experienced by producers

Both China’s CPI and PPI are closely watched by traders, as China is Australia's largest trading partner. These reports do not directly determine the Reserve Bank of Australia (RBA) decisions, but they can affect the Australian economy through trade and commodity channels.

Hotter-than-expected readings may signal improving domestic demand and industrial activity in China, which could lift the China-proxy Aussie as risk sentiment improves. On the other hand, softer-than-expected readings could raise concerns about China's economic growth and weigh on the AUD.

Technical Analysis: AUD/USD remains capped under the key 100-day SMA

In the daily chart, AUD/USD keeps a bearish near-term bias as spot holds beneath the 100-day simple moving average (SMA). The pair remains pressured after its recent slide from the mid-0.72s, while the Relative Strength Index (RSI) at 35 is edging toward oversold territory, which hints at stretched downside but does not yet negate the prevailing downward tone.

On the topside, the 100-day SMA at 0.7080 is the first notable resistance that bulls would need to reclaim to ease immediate downside pressure and open room for a more sustained recovery. With no clear structural supports immediately below current levels on this timeframe, the focus stays on whether sellers can maintain control under the moving average or if an oversold bounce develops toward that cap.

(The technical analysis of this story was written with the help of an AI tool.)

Economic Indicator

Consumer Price Index (YoY)

The Consumer Price Index (CPI), released by the National Bureau of Statistics of China on a monthly basis, measures changes in the price level of consumer goods and services purchased by residents. The CPI is a key indicator to measure inflation and changes in purchasing trends. The YoY reading compares prices in the reference month to the same month a year earlier. Generally, a high reading is seen as bullish for the Renminbi (CNY), while a low reading is seen as bearish.

Inflation FAQs

What is inflation?

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

What is the impact of inflation on foreign exchange?

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

How does inflation influence the price of Gold?

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.