AUD Fights to Hold Above 0.7200 as Inflation Concerns Linger

The Australian Dollar (AUD) is holding strong above 0.7200 as investors remain focused on inflation, which continues to be a major concern for the Reserve Bank of Australia (RBA). Despite softer consumer and business sentiment in August and September, respectively, trimmed mean Consumer Price Index (CPI) held at 3.6% year-over-year in July, above the RBA's 3.3% year-end forecast.

Meanwhile, real GDP growth reached 2.1% year-over-year in Q2, beating the RBA's 1.9% forecast. This data supports the case for a 25bps hike to 4.60% on September 29, although the RBA may wait until November 3 to assess both the August and Q3 CPI prints.

Assistant Governor (Economic) Sarah Hunter warned that if inflation is stronger than expected, the Board may raise interest rates to tackle it. Australia's attractive carry and strategic commodity exposure remain key AUD tailwinds.