Australia's Q2 CPI report lands Wednesday, and Governor Michele Bullock has already changed the test it has to pass. The question is no longer whether underlying inflation is elevated, but whether it runs hotter than the 3.8% the RBA itself forecast in May. AUD/USD is stalled at resistance until the print answers it.
Reserve Bank of Australia Governor Michele Bullock kept the Board's tightening bias intact today while draining the urgency behind it, leaving AUD/USD pinned below resistance ahead of Wednesday's Q2 inflation report. In a speech, she said the Board stands ready to raise the cash rate further if needed — "prepared to act as required to achieve its mandate".
Yet she paired that with a more nuanced read of current conditions, noting underlying inflation has evolved broadly as expected since May while housing activity and the labour market have softened more than the RBA anticipated. Those developments point to monetary policy restraining demand more than the Bank expected only months ago.
The number that matters is 3.8%
Consensus looks for the quarterly trimmed mean — the RBA's preferred guide — to rise 0.9% qoq after 0.8% previously, lifting the annual pace from 3.6% to 3.7%. That would mark a fourth consecutive quarterly reading inside the 0.8%–1.0% range.
More telling is the comparison with the RBA's own May Statement on Monetary Policy forecast of 3.8% yoy. A print at or above that level would suggest inflation is running hotter than the Bank anticipated, restoring a pressing case for a hike at the August 11 meeting. A reading around 3.7% or lower would reinforce Bullock's view that inflation is evolving as expected, giving the Board little incentive to tighten immediately.
Headline CPI is expected to rise 0.7% qoq after 1.4% in Q1, with annual inflation holding at 4.1% thanks to lower fuel prices. That sits comfortably below the RBA's May baseline forecast of 4.8%, which leaves the policy focus squarely on the trimmed mean.
Three headwinds cap the Australian Dollar
The rebound from the 0.6864 short-term low has stalled in a key resistance zone. That zone runs from the 55-day EMA at 0.7008 to the 38.2% retracement of 0.7277 to 0.6864, at 0.7022.
Receding RBA hike expectations are the first drag. Elevated Fed rate-hike expectations are the second, a residual effect of the oil shock rather than its current direction: Brent has fallen sharply this week on the US-Iran pause, but at $83–88 it remains well above July's $70 low, and the month's spike toward $100+ has left markets pricing meaningfully higher odds of a September Fed hike than two weeks ago.
Deteriorating risk appetite is the third. Regional technology stocks continue to struggle, with the KOSPI down 10.84% today and the Nikkei off 3.95% as markets reacted to concerns over Nvidia's "circular financing" model.
The Fed decision could overturn any CPI move
A stronger-than-expected CPI print tomorrow might give AUD/USD a brief bounce, but that momentum won't sustain unless the other two factors resolve. The Fed rate decision also lands tomorrow, and a hawkish FOMC vote could easily overturn any CPI-driven boost.
Alternatively, a weaker-than-expected report — or even an in-line print — could finally bring sellers in and push AUD/USD through 0.6964 minor support and the near-term rising channel floor. That would argue the rebound from 0.6864 has completed as a corrective bounce, with a retest of that low likely next and the downtrend from 0.7277 poised to resume.
Source: ActionForex
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