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26 June 2024 | FXGT.com

Australian CPI Surge Sparks Rate Hike Speculation

  • AUD/USD Surge Retraces to Pre-Announcement levels: This morning, the AUD/USD surged higher after Australia reported unexpectedly high CPI numbers. However, the initial move has since retraced, with the AUD/USD now back to the level it was prior to the announcement. The latest data has led to a reassessment of the Reserve Bank of Australia’s (RBA) upcoming rate decisions.
  • Australian CPI: Australia’s CPI climbed to 4% year-on-year in May, up from 3.6% in April and above the consensus of 3.8%. The core measure also increased to 4.4%, the highest level in six months.
  • Market Reaction: The AUD/USD pair initially rose over 0.5% to $0.6680 after the announcement. The probability of holding rates steady for August dropped to 70%, while the likelihood of a rate hike in September increased to above 50%. This suggests a possible move in August following the full second-quarter CPI report.
  • RBA Stance: The unexpected rise in consumer prices has reinforced the RBA’s hawkish stance. Market expectations for an August rate hike have increased, boosting the Aussie dollar. The RBA has highlighted its commitment to addressing inflation risks, signalling potential further rate hikes if inflation persists. While the RBA remains cautious and keeps all policy options on the table, the latest inflation figures suggest that a rate hike is becoming a real possibility.
  • Divergence in Monetary Policy: The RBA’s potential rate hikes contrast with the rate cuts or pauses seen among other developed central banks, highlighting a growing divergence in monetary policy. This divergence is likely to support the AUD, particularly if inflationary pressures persist.
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