Money markets price a 99% probability the RBA holds its cash rate at 4.35% on Tuesday, even as the central bank keeps a hawkish tone. Later in the week, US retail sales and CPI data will test the dollar side of AUD/USD after a mixed set of Australian releases.
The Reserve Bank of Australia meets Tuesday, and traders see almost no chance of a move away from the current 4.35% cash rate. The bank will also publish its quarterly Statement on Monetary Policy alongside updated economic projections.
RBA holds a hawkish line despite cooling data
The RBA paused in June after three consecutive hikes, but warned it could raise rates further if needed, citing persistent inflation and oil supply disruptions. Governor Bullock said inflation remained too high and that the board could not rule out doing more on rates, though she added it was too early to say whether a cooling housing market would help.
Yet the latest figures argue for patience. Australian headline inflation cooled to 3.9% Y/Y in Q2, below the 4.1% expected and matching the prior reading. The RBA's preferred trimmed mean measure also eased, to 3.6% Y/Y, softer than the 3.7% forecast.
Both measures remain above the 2-3% target, keeping the board's hawkish tone intact. Employment rose 76.3k in June, far above the 15k forecast, with the unemployment rate steady at 4.4%, suggesting the board has room to manoeuvre on policy.
US retail sales and CPI weigh on the dollar leg
On the US side, the consensus looks for retail sales to rise 0.2% M/M in June, matching the prior month's pace, with the core measure up 0.2% M/M against a prior decline of 0.2%. The control group is expected to rise 0.3% M/M, slower than the previous 0.5% gain. The Chicago Fed's July advance retail trade summary points to sales ex-autos rising just 0.1% M/M, unchanged once adjusted for inflation.
Ahead of that, Wednesday's US CPI print is expected to show headline inflation rising 0.1% M/M in July after a 0.4% decline the prior month, with the core rate up 0.2% M/M. Markets currently price a 53% chance of a 25bps Fed rate rise in September, a probability that could shift once the interest rate picture for the world's largest economy comes into sharper focus.
With the RBA expected to hold and the Fed's next move still contested, AUD/USD is likely to stay sensitive to any surprise in either the Australian jobs backdrop or the US inflation and spending data due this week.
Source: Investinglive (Newsquawk)
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