The Australian Dollar (AUD) saw a decline in performance as Australian bonds surged due to cooler underlying inflation data. According to BBH FX analysts, the policy-relevant trimmed mean CPI came in lower than expected, with a rise of 0.8% q/q (consensus: 1.0%, prior: 1%) resulting in a 3.9% y/y figure (consensus: 4.0%, prior: 4.0%).
Impact on USD and Australian Economy
The softer inflation data in Australia had a downward impact on the USD. Despite headline CPI meeting consensus at a 1% q/q increase driven by Housing and Non-alcoholic beverages, annual CPI inflation accelerated to 3.8% from 3.6% in Q1. However, the trimmed mean inflation slowed to 4.1%.
Additionally, Australian households are cutting back on spending, as seen in a larger-than-expected decline in retail turnover by -0.3% q/q in Q2. Nominal retail sales growth did surpass expectations in June, rising 0.5% m/m.
RBA Rate Hike Expectations and Future Outlook
The softer inflation and weak retail sales data have led to a shift in RBA rate hike expectations. Cash rate futures now indicate a 70% probability of a 25bps rate cut by year-end, compared to previous expectations of a rate hike. The RBA is likely to maintain its current stance given that inflation remains above the 2-3% target range.
Expert Analysis and Conclusion
As the world’s top investment manager and financial market journalist, it is crucial to understand the impact of key economic data on currency movements and policy decisions. The weaker inflation data in Australia has not only affected the AUD but also influenced market expectations regarding interest rate changes.
For investors and individuals, this means potential shifts in currency valuations and borrowing costs. It is important to stay informed about economic indicators and central bank policies to make informed decisions about investments and financial planning. Keep an eye on future data releases and central bank announcements for further insights into market trends and opportunities.