AUD/USD upside capped by CPI – UOB

FX Strategists at UOB Group assessed the recent release of Australian CPI figures and their impact on the Aussie Dollar.

Key Quotes

“Australia’s annual inflation rate slowed unexpectedly in 2Q – the CPI advanced at an annualized 1.9% y/y after a 2.1% uptick the previous quarter. Compared to the first quarter, the CPI rate accelerated 0.2% q/q, following a 0.5% increase in each of the past two quarters”.

“The Reserve Bank of Australia (RBA)’s trimmed mean CPI – a measure of core inflation – rose 1.8% y/y, in line with expectations, and compared to a revised 1.8% previously. Core inflation rose 0.5% q/q compared to the previous quarter, also in line with expectations”.

“Last year, CPI fell to multidecade lows, prompting the RBA to slash interest rates on multiple occasions. We expect ongoing softness in wages growth to keep core inflation subdued”.

“Off the back of intense USD sell-off, the AUD/USD has had a strong run-up over the past month, popping above 0.75 to a high of 0.7989, just under the key 0.8000 resistance. The softer than expected CPI print helped trigger a much welcomed correction, capping AUD/USD at 0.7950 and pushing it back down to 0.7900”.