Australia’s CPI inflation data (Consumer Price Index) rose +3.5% (YoY) in July 2024, slightly below the market’s median consensus (+3.5%), though down from June’s reading of +3.8% and the lowest level seen since March this year. The disinflation trend has resumed its downward path following inflation clocking highs of +4.0% in May 2024 (YoY), its highest inflation rate since November 2023.

The uptick in prices was driven primarily by YoY rises in ‘alcohol and tobacco’ (+7.2%), ‘housing’ (+4.0%), ‘food and non-alcoholic beverages’ (+3.8%), and ‘transport’ (+3.4%). However, electricity prices fell -5.1% in July from a +7.5% rise in June, driven lower by the 2024-25 Commonwealth Energy Bill Relief Fund (EBRF) rebates.

Core measures in inflation are also now on the right path, with both key measures lower in July. Excluding volatile items and travel, CPI inflation rose +3.7% (YoY) from +4.0% in June; the ‘Trimmed Mean CPI’ also slowed to +3.8% (YoY) from +4.1% in June.

While recent data triggered an immediate bid in the Australian dollar (AUD) versus most of its G10 peers, which likely caught traders off guard given the fall in core measures, optimism rapidly tapered off during Asia Pac trading. Demand for the AUD, however, moderately picked up again heading into the European session, with the AUD/USD exchange rate up +0.1%.

RBA Expected to Ease Policy in December

The Reserve Bank of Australia (RBA) has held its cash rate at 4.35% this year. According to money markets, investors are still pricing in -23 basis points of easing this year, with a rate reduction expected at December’s meeting.

The latest inflation numbers will be welcomed news at the RBA; you may recall that the minutes from the RBA August meeting underlined a hawkish stance, where it considered increasing the cash rate. RBA Governor Michelle Bullock also emphasised this tone in her press conference.

AUD/NZD Testing Support; Downside Breakout?

From the daily timeframe of AUD/NZD, price recently tested the mettle of support at NZ$1.0880. Given recent inflation numbers, this could see the cross venture beneath support and take aim at another layer of support coming in between NZ$1.0724 and NZ$1.0756.

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