AUD Faces Pause as Inflation Eases and RBA Rate Expectations Shift
Australia's Consumer Price Index (CPI) is expected to ease in July, according to Brown Brothers Harriman's (BBH) Elias Haddad. The CPI is forecasted to reach 3.3% year-over-year (y/y), down from 3.8% in June. This decline is attributed to softer labor market conditions and cooling private sector wage growth.
The Reserve Bank of Australia (RBA) continues to focus on trimmed mean inflation, which is expected to edge down to 3.3% y/y by the end of December. The RBA Minutes from the August meeting will provide insights into the likelihood of another interest rate hike, while Q2 private capital expenditure data will shape GDP forecasts ahead of the September 2 release.
RBA cash rate futures imply a 60% chance of one final 25bps hike to 4.60%. However, Haddad sees risks skewed towards an extended pause in the RBA tightening cycle due to policy already being somewhat restrictive. Despite this, Australia's attractive carry and strategic exposure to commodities remain key AUD tailwinds.