Australia’s Consumer Price Index (CPI) jumped by 2.8% in the year to July, following a 1.9% increase reported in June, the latest data published by the Australian Bureau of Statistics (ABS) showed on Wednesday.
The market consensus was for 2.3% growth in the reported period.
Meanwhile, the Australian Construction Work Done data for the second quarter (Q2) arrived at 3% versus 0.8% expected and 0% previous.
Market reaction to Australia’s July CPI inflation
The AUD/USD pair kept its latest uptick following the hot data, up 0.20% on the day at 0.6500, when writing.
Australian Dollar Price Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.07% | 0.06% | 0.16% | -0.04% | -0.11% | 0.13% | 0.02% | |
| EUR | -0.07% | -0.02% | 0.03% | -0.16% | -0.25% | 0.00% | -0.10% | |
| GBP | -0.06% | 0.02% | 0.10% | -0.09% | -0.12% | 0.06% | -0.03% | |
| JPY | -0.16% | -0.03% | -0.10% | -0.19% | -0.30% | -0.06% | -0.09% | |
| CAD | 0.04% | 0.16% | 0.09% | 0.19% | -0.06% | 0.19% | 0.06% | |
| AUD | 0.11% | 0.25% | 0.12% | 0.30% | 0.06% | 0.25% | 0.15% | |
| NZD | -0.13% | -0.01% | -0.06% | 0.06% | -0.19% | -0.25% | -0.10% | |
| CHF | -0.02% | 0.10% | 0.03% | 0.09% | -0.06% | -0.15% | 0.10% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
Thiis section was published on August 26 at 23.34 GMT as a preview of the Australian monthly CPI inflation data.
The Australian CPI inflation Overview
The Australian Bureau of Statistics (ABS) will publish its monthly Consumer Price Index (CPI) report for July on Wednesday at 01.30 GMT.
The monthly CPI is expected to show an increase of 2.3% year-over-year (YoY) in July, compared to a 1.9% figure reported in June.
How could the Australian CPI inflation affect AUD/USD?
AUD/USD trades in positive territory near a weekly high of 0.6505 in the lead up to the Australian CPI inflation report. The pair gains ground as the US Dollar weakens on fears over the Federal Reserve’s (Fed) independence after US President Donald Trump announced he was firing a Fed Governor Lisa Cook.
If inflation comes in hotter than expected, it could lift the Australian Dollar (AUD), with the first upside barrier seen at the August 18 high of 0.6524. The next resistance level emerges at the August 7 high of 0.6541, en route to the August 13 high of 0.6562. To the downside, the 100-day Exponential Moving Average (EMA) at 0.6468 will offer some comfort to buyers. Extended losses could see a drop to the August 5 low of 0.6450, followed by the August 21 low of 0.6415.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
