AUD/USD Pauses Ahead of Critical Inflation Report
The Australian dollar (AUD) has been consolidating against the US dollar (USD) ahead of a critical inflation report from Australia. The AUD/USD finished slightly lower last week at 0.6979, after three consecutive weeks of gains, due to cautious global risk appetite offsetting a strong labour force report for June.
The labour force report showed Australian employment surged by 76,800 in June, surpassing the consensus forecast of a 15,000 gain. The unemployment rate remained steady at 4.4%, while the participation rate increased 0.3 percentage points to 67.0%. This reinforces the Reserve Bank of Australia's (RBA) assessment that labour market conditions are 'a bit tight'.
Improved risk sentiment due to de-escalation in the Middle East has seen AUD/USD trading higher at 0.6998 this afternoon. However, ahead of Wednesday's all-important second quarter (Q2) consumer price index (CPI), the Aussie will continue to be driven by a mix of local and offshore forces. The RBA's preferred measure, the trimmed mean, is expected to rise to 3.8% year-on-year (YoY), with headline inflation staying at 4.0% YoY.
Market expectations are that an in-line or hotter-than-expected core reading would reinforce the RBA's hawkish bias and raise the chances of a rate hike in August. On the other hand, a softer print of 3.5% or less would help keep the RBA on the sidelines until the September Board meeting.