- AUD/USD trades sideways around 0.6500, while Aussie inflation cools down faster than expected.
- Soft Aussie inflation supports the need of swift monetary policy easing by the RBA.
- Easing geopolitical tensions have diminished demand for safe-haven assets.
The AUD/USD pair trades in a tight range around 0.6500 during the European trading session on Wednesday. The Aussie pair oscillates inside the Thursday’s trading range, while soft Australian Monthly Consumer Price Index (CPI) data for May has increased hopes of an interest rate cut by the Reserve Bank of Australia (RBA) in the July policy meeting.
The data showed earlier in the day that the Monthly CPI grew moderately by 2.1% on year, compared to expectations of 2.3% and the prior reading of 2.4%.
Economists at Commonwealth Bank (CBA) said in a note after the Australian inflation data release that the soft inflation data should provide “comfort to the RBA to bring the Official Cash Rate (OCR) lower swiftly to the neutral rate around 3.35%”.
Meanwhile, the US Dollar (USD) strives to gain ground after sliding to near its weekly low. The US Dollar Index (DXY), which tracks the Greenbacks value against six major currencies, trades cautiously around 98.00. The US Dollar faced sharply on Tuesday after United States (US) President Donald Trump announced a ceasefire between Israel and Iran, which led to a decline in the demand for safe-haven assets.
On the domestic front, Federal Reserve (Fed) Chair Jerome Powell stated in his semi-annual testimony on Tuesday that the central bank is “well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance”. Powell guided that the central bank will closely monitor the impact of tariffs on inflation during the summer.
(This story was corrected at 10:04 GMT to say in the third bullet that easing geopolitical tensions have diminished demand for safe-haven assets, not improved.)
Economic Indicator
Monthly Consumer Price Index (YoY)
The Monthly Consumer Price Index (CPI), released by the Australian Bureau of Statistics on a monthly basis, measures the changes in the price of a fixed basket of goods and services acquired by household consumers. The indicator was developed to provide inflation data at a higher frequency than the quarterly CPI. The YoY reading compares prices in the reference month to the same month a year earlier. A high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.
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