AUD Holds Above 0.7200 as Inflation Concerns Counter Softening Sentiment

The Australian Dollar (AUD) has maintained its position above the 0.7200 mark as sentiment in Australia softens, but inflation remains a key concern for the Reserve Bank of Australia (RBA). According to Brown Brothers Harriman's (BBH) Elias Haddad, the AUD/USD is currently holding steady, despite weakening consumer and business sentiment.

Assistant Governor Sarah Hunter warned that if inflation exceeds the RBA's 3.3% year-end forecast, interest rates may be raised to tackle it. This concern is fueled by data showing Australia's trimmed mean Consumer Price Index (CPI) held at 3.6% year-over-year in July, above the RBA's forecast.

The real GDP growth rate of 2.1% year-over-year in Q2 also beat the RBA's 1.9% forecast. These figures support the case for a 25 basis point hike to 4.60% on September 29, which is currently priced-in by markets at 70%. However, the RBA may delay this decision until November 3 to assess both August and Q3 CPI prints.

Another key factor supporting the AUD is its attractive carry and strategic exposure to commodities linked to energy, AI, and defense. These tailwinds are expected to remain a key influence on the currency.