- The monthly Australian Consumer Price Index is forecast to be 2.3% in September.
- Quarterly CPI inflation is expected to be below 3%, but underlying numbers are still considered too high.
- The Reserve Bank of Australia will meet in early November to decide on monetary policy.
- The Australian Dollar could find some short-term demand if the CPI readings are higher than anticipated.
Australia will release new inflation-related figures on Wednesday, kicking off a series of top-tier global releases that should provide volatility across the currency market. Prior to the announcement, the Australian Dollar (AUD) fell to a near three-month low against the US Dollar (USD), with the latter benefiting from the prevailing demand for safety.
The Australian Bureau of Statistics (ABS) will publish two different inflation indicators: the quarterly Consumer Price Index (CPI) for the third quarter of 2024 and the monthly CPI for September, which measures annual price pressures over the last twelve months . The quarterly report includes the Trimmed Consumer Price Index, the Reserve Bank of Australia’s (RBA) favorite inflation gauge.
The RBA will have a monetary policy meeting next week and the result will be announced on November 5. The Australian central bank has kept the Official Cash Rate (OCR) steady at 4.35% for about a year, and a rate cut remains out of sight.
What to expect from Australia’s inflation rate figures?
The ABS is expected to report that the monthly CPI rose 2.3% in the year to September, declining from the 2.7% recorded in August. The quarterly CPI is expected to increase by 0.3% quarter-on-quarter (QoQ) and 2.9% year-on-year (YoY) in the third quarter of the year. Finally, the central bank’s preferred gauge, the RBA Trimmed CPI, is expected to rise 3.5% year-on-year in the third quarter, slowing from the 3.9% advance recorded in the previous quarter.
Inflation pressures in Australia are easing after a difficult first quarter of 2024 and are now expected to fall within the RBA’s target range of 2% to 3%. However, Australian policymakers have repeated multiple times that inflation remains high and would not be sustainable on target for “another year or two.” With this in mind, an interest rate cut before 2025 remains out of the picture.
Easing inflation pressures, however, should increase the odds of an interest rate cut soon, particularly considering declining growth. The Australian economy has not fallen into recession, but it is close to it. Only government spending has prevented the country from suffering a more pronounced setback. The latest Gross Domestic Product (GDP) showed the economy grew 0.2% quarter-on-quarter and 1.0% year-on-year in the three months to June.
In September, following the RBA’s latest policy meeting, Governor Michele Bullock noted that while inflation “has declined substantially from the peak in 2022”, it remains above the RBA’s preferred range of 2% to 3%. Bullock highlighted that core inflation was higher, at 3.9% in the year to the June quarter. Attention will then focus on the core CPI, as it remains closer to 4% than the maximum target of 3%.
An increase in price pressures will likely push the odds of an interest rate cut further. The aggressive tone from policymakers will reinforce this idea, resulting in a stronger AUD. However, its strength remains doubtful, given the global scenario that continues to push investors towards safe-haven assets.
How could the Consumer Price Index report affect AUD/USD?
As noted above, the RBA will meet next week and announce its decision on November 5. Market participants won’t expect action, but policymakers will acknowledge inflation levels and hopefully hint at where they’re headed next.
Overall, higher CPI numbers will be bullish for AUD amid expectations of a persistently hawkish RBA. The opposite scenario is less likely: Inflation may decline, but that will not guarantee that policymakers will shift toward a more dovish stance.
Ahead of the CPI release, the AUD/USD pair is trading below the 0.6600 level, falling for the third consecutive day.
Valeria Bednarik, Chief Analyst at FXStreet, says: “The AUD/USD pair is not done with its decline, and regardless of the AUD’s reaction to the CPI, the risk is skewed to the downside. A recovery after the release of the data Inflation could allow sellers to add short positions. From a technical perspective, the daily chart shows that AUD/USD is developing below all its moving averages. The 20-day SMA is heading south. almost vertically and is about to cross below a directionless 100-day SMA. The 200-day SMA also remains flat, providing resistance around 0.6630. Finally, technical indicators remain at negative levels, albeit with bearish strength. unequal.”
Bednarik adds: “The AUD/USD pair has an immediate support zone around 0.6550, where it recorded daily highs and lows between May and July. A break below this region should favor a bearish extension towards the 0.6500 threshold, while Once the latter gives way, sellers could target the 0.6400-0.6430 zone. Short-term resistance lies at 0.6630, en route to the 0.6670 zone. Further gains could result in a test of the 0.6710 zone. although sellers will probably take advantage of their opportunities around it.”
Inflation FAQs
Inflation measures the rise in prices of a representative basket of goods and services. General inflation is usually expressed as a month-on-month and year-on-year percentage change. Core inflation excludes more volatile items, such as food and fuel, which can fluctuate due to geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the target level of central banks, which are mandated to keep inflation at a manageable level, typically around 2%.
The Consumer Price Index (CPI) measures the variation in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage of inter-monthly and inter-annual variation. Core CPI is the target of central banks as it excludes food and fuel volatility. When the underlying CPI exceeds 2%, interest rates usually rise, and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually translates into a stronger currency. The opposite occurs when inflation falls.
Although it may seem counterintuitive, high inflation in a country drives up the value of its currency and vice versa in the case of lower inflation. This is because the central bank will typically raise interest rates to combat higher inflation, attracting more global capital inflows from investors looking for a lucrative place to park their money.
Gold was once the go-to asset for investors during times of high inflation because it preserved its value, and while investors often continue to purchase gold for its safe haven properties during times of extreme market turmoil, this is not the case. most of the time. This is because when inflation is high, central banks raise interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity cost of holding Gold versus an interest-bearing asset or placing money in a cash deposit account. On the contrary, lower inflation tends to be positive for Gold, as it reduces interest rates, making the shiny metal a more viable investment alternative.
economic indicator
Consumer Price Index (MoM)
The Consumer Price Index published by the Reserve Bank of Australia (RBA) and republished by Australian Bureau of Statistics It is a measure of price developments by comparing the retail prices of a representative shopping basket of goods and services. The purchasing power of the AUD is dragged down by inflation. The CPI is a key indicator for measuring inflation and changes in purchasing trends. A high reading is considered positive (or bullish) for the AUD, while a low reading is considered negative (or bearish).
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Dear:
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Fountain:
Australian Bureau of Statistics
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
