AUD: higher inflation and what it means
AUD/USD strengthened to $0.9440 after a government report showed annual inflation accelerated to the fastest pace in 4 years. Australian consumer prices climbed 3% in Q2 from a year earlier, matching estimates. The RBA aims for inflation of between 2 and 3%. Trimmed mean CPI reading, which excludes the most volatile components, increased by 2.9% y/y vs. 2.7% expected.
As a result, traders pared bets that the Reserve Bank of Australia will cut interest rates next year. According to Westpac, as inflation is currently low in the many countries of the world, higher reading from Australia caused AUD/USD to rise. HSBC points out that it will be now more difficult for the RBA to lower the national currency and convince the market that it will likely cut interest rates further when inflation is in the upper part of their target band.