Australian CPI Expected to Rise to 5.2%: Impact on AUD/USD and RBA's Rate Hike Dilemma

Australian CPI expected to rise to 5.2%

The Australian dollar is in negative territory on Tuesday. In the North American session, AUD/USD is trading at 0.6405, down 0.28%.

Australian CPI expected to rise

Australia releases the CPI report on Wednesday. In July, CPI eased to 4.9%, beating expectations and dropping to the lowest inflation rate since February 2022. CPI is expected to rise to 5.2% in August.

Inflation remains more than double the 2% target, and the core rate is also high, with the trimmed mean dropping from 6.0% to 5.6% in August. The RBA has raised rates to 4.1%, the highest level since 2012. Have interest rates peaked? That is the thousand-dollar question. The futures markets have priced in a final rate hike before the end of the year at 35%, as investors are betting the Reserve Bank of Australia is likely done with rate tightening. The Australian economy has cooled off as a result of the RBA’s tightening, and the slowdown in China could tip the economy into a recession if rates were to move higher.

The central bank is understandably more hawkish, as policy makers don’t want to close the door on further tightening with inflation still well above the target. The new RBA Governor, Michelle Bullock, has warned that the door remains open to further rate hikes and said that upcoming decisions will be based on key data. The RBA minutes from the September meeting indicated that members considered a rate hike, but in the end, opted to pause rates.

In the US, Consumer Board (CB) Consumer Confidence slipped to 103.0 in August, down sharply from a revised July read of 108.7 and shy of the market consensus of 105.5. This marked a 4-month low. Consumers noted concern over rising gasoline prices and high interest rates and the percentage of consumers who expect a recession rose in September, according to the CB. This does not bode well for consumer spending, a key driver of US growth.

AUD/USD Technical

AUD/USD is putting pressure on support at 0.6380. The next support line is 0.6320
There is resistance at 0.6446 and 0.6506

Ed Moya

With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.