Australian Dollar: CPI keeps RBA on hold bias – ING

ING’s Francesco Pesole expects Australia’s July inflation data to show further moderation, consistent with no additional Reserve Bank of Australia hikes this year. He argues Governor Bullock is likely to stay hawkish, and even a small inflation surprise could lift AUD. ING remains constructive on AUD/USD, eyeing a move above the May 0.7260-0.7270 highs before year-end.

Inflation data key for RBA expectations

"Australia releases July inflation data at 02:30 BST tomorrow. Consensus expects headline CPI to slow from 3.8% to 3.3%, although the volatility of the series means the trimmed mean is likely to attract greater attention. Expectations are for a modest easing from 3.6% to 3.5%."

"In our view, such an outcome would remain consistent with our call of no further RBA hikes this year as inflation continues to moderate. At the same time, it is unlikely to be enough for Governor Michele Bullock to adopt a more dovish tone."

"Bullock has remained notably hawkish, yet markets continue to price only a 50% probability of a hike by year-end. Even a small inflation surprise could narrow the gap between market pricing and Bullock’s rhetoric, providing near-term support for AUD."

"More broadly, we remain constructive on AUD/USD. Our 0.72 end-3Q target has nearly been reached sooner than expected, but strong fundamentals and attractive carry still make a move above the May 0.7260-70 highs before year-end a compelling scenario."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)