Australian Inflation Rate Slows to 6% and Shuts the Door on the RBA

Highlights

• Australian inflation numbers for Q2 eased the bets on further RBA maneuvers to curb spending and tame inflation.
• Inflation was the story of the morning. In Q2, the annual inflation rate softened from 7.0% to 6.0%,
• However, the Fed and Fed Chair Powell will have the final say later today.

It was a relatively busy start to the day on the Asian economic calendar, with Australian inflation numbers in focus. The latest employment numbers supported further RBA interest rate hikes to curb spending and tame inflation, placing greater importance on inflation reports.

This morning, inflation numbers for the second quarter eased bets on further RBA monetary policy tightening. The annual inflation rate softened from 7.0% to 6.0% in the second quarter versus a forecasted 6.2%.

According to the ABS,

• International holiday travel and accommodation (+6.2%), other financial services (+2.5%), and new dwelling purchases by owner-occupiers (+1.0%) had the largest contributions.
• Food and non-alcoholic beverage prices increased 7.5% year-over-year, with housing prices up 8.1%.
• However, clothing & footwear prices rose by 0.3%, with prices for communication up 0.7%.
• Prices for automotive fuel were 3.6% lower year-over-year.
• Services annual inflation accelerated to 6.3%, the highest since 2001, while goods inflation eased to 5.8%.

AUD to USD Reaction to Australian Inflation Report

Before the Australian inflation numbers, the AUD to USD rose to a pre-stat high of $0.67937 before falling to a low of $0.67736.

However, in response to the inflation numbers, the AUD to USD tumbled from $0.67755 to a post-stat low of $0.67304.

This morning, the AUD to USD was down 0.71% to $.67435.

Next Up

US housing sector data should have a muted impact on market risk sentiment, with the Fed interest rate decision and press conference in focus.

A 25-basis point interest rate hike would leave the FOMC Statement and press conference to move the dial. With the softer US CPI Report wiping out bets on a September rate hike, a hawkish 25-basis point interest rate hike would catch the markets by surprise.