Australian Dollar, AUD/USD, RBA, CPI, Inflation, ASX 200 – Talking Points

  • The RBA are within the thick of their inflation struggle, once more mountaineering by 0.5%
  • AUD/USD went decrease within the aftermath, whereas the ASX 200 received a small carry
  • The RBA have extra hikes in thoughts. Will AUD/USD be the beneficiary?

The Australian Dollar headed south after the RBA additional confirmed their alliance with different international central banks on a strong tightening regime.

The financial institution lifted the money price by 50 foundation factors to 1.35% from 0.85%. This is the primary time that the financial institution has raised charges by 50 foundation factors at consecutive conferences.

The assertion continuing the choice highlighted the worldwide provide chains points they usually count on inflation to peak later this yr after which return to their goal in 2024.

The assertion concluded with, “The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.

Australia’s ASX 200 fairness index discovered some assist in response to the information. The 3-year Commonwealth Australian Government bond yield went 8 foundation factors decrease to 2.95% instantly after the announcement.

Going into the assembly, AUD/USD and the ASX 200 had discovered assist to begin the week after a dump to finish final week on the again of detrimental danger urge for food permeating markets.

Globally, there’s a conundrum for central banks of weighing the recession danger versus inflation containment. Australia could be in a relatively distinctive place.

In the week main up to as we speak’s assembly, Australia’s second tier financial information releases have been sturdy and all of them shocked to the upside. Retail gross sales, job adverts and vacancies, personal sector credit score development, dwelling loans and constructing approvals all beat expectations.

Before all that information was out there, RBA Governor Philip Lowe had already sounded the alarm bell on inflation and the money price. CPI is anticipated by the financial institution to be round 7% by December and the money price could possibly be at 2.5%.

If we break down the quarterly CPI numbers, 7% inflation could possibly be right here prior to December.

Second quarter 2021 CPI was 0.8% and this quantity will drop off the CPI studying that’s due out 27th July. First quarter 2022 CPI was 2.1%.

The first 3 months of the yr solely consists of 1-month of the large surge in commodity costs, notably vitality and meals. The largest will increase in manufacturing prices had been but to be absolutely handed by means of to the patron.

If we assume that second quarter 2022 CPI is available in on the identical price as the primary quarter (2.1%), that can give us annual learn of 6.3%.

Looking on the extraordinary rise in vitality, meals and constructing supplies over the second quarter of this yr, there’s a sturdy likelihood of a lot larger quantity.

If CPI prints above 7% in July, the RBA would possibly proceed with a jumbo hike at their subsequent assembly on Tuesday 2nd August.

Whether or not this interprets into larger AUD/USD stays to be scene and international machinations will proceed to affect the Aussie.

If AUD/USD continues to languish, then this may additional stimulate the home financial system with the commerce steadiness persevering with to add circa AUD 10 billion every month.

The full assertion from the RBA will be learn right here.

AUDUSD CHART

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the feedback part under or @DanMcCathyFX on Twitter

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