AUD steady despite upswing in domestic inflation

Daily Currency Update

AUD - Australian Dollar

The Australian dollar extended back above 0.75 US cents on Wednesday, buoyed by a broader US dollar downturn and larger than anticipated rise in domestic inflation. Yesterday’s quarterly CPI data showed the trimmed mean (the RBA preferred measure) rose 0.7% q/q, a seven year high and enough to push the annualised rate of inflation toward the top of the RBA’s 2-3% target range. Market estimates wrote in a 0.4%-0.5% increase and the shock to upside is a wake-up call to policy makers and those suggesting conditions for an interest rate hike will not be met until 2024. The RBA forecasting suggested it did not expect inflation to rise above 2% until mid-2023, while its yield curve policy is designed to keep bond rates at 0.1% into April 2024. Yesterday’s CPI print served to highlight the gap in RBA forecasting and with bond rates rising, yield curve controls will now need to be revised or abandoned in favour of tighter monetary policy. The AUD touched intraday highs at 0.7535 and opens this morning only marginally below this handle at 0.7520. Markets have seemingly entered a period of consolidation and we expect, shocks aside, the AUD will trade between 0.7400 and 0.7550 through the next 7 days and into the Fed policy meeting in November.