CPI Meets Expectation: What Now for the RBA?

The RBA has made it clear that they are looking to slow down the interest rate cuts for the foreseeable future. One key metric that continues to cause them problems is CPI.

Inflation has been under their target band of 2-3% for some time and as yet, it isn’t making much headway.

Today we saw 0.5% QoQ and 1.7% YoY, which were right on expectations.

However, as we know, the RBA’s grand plan has been to use monetary policy to ultimately stoke inflation. They have been focusing on improving employment in a bid to boost wages which will hopefully filter through to improved inflation.

So far the first stage, boosting employment has been working.

We recently saw the jobless rate drop 0.1%, back to 5.2%. This is still not quite where they would like it to be, but as we know, it takes 12-18 months for the effects to filter through.

So the next stage will hopefully be an uptick in wages, which have been sluggish for some time. Then hopefully we will see inflation tick back higher into that 2-3% band.

So far the AUD/USD has been making a bit of a base and has so far been somewhat bullish.

0.6700 has provided a very strong base and now it looks like 0.6800 will also provide some buying interest.

That said, I am still somewhat bearish on the Aussie at the moment. I can’t see it rallying much beyond the 0.7000 mark, and anything under that area would be pleasing to the RBA.

That said, the main market mover of the day is likely to be out of the US with the FOMC. While the US is expected to cut rates again by 25bp, we could well see a USD rally, if the outlook is once again hawkish in the medium term.

AUD/USD
AUD/USD – 240min.
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ABOUT THE AUTHOR See More
Rowan Crosby
Asia-Pacific Analyst
Rowan Crosby is a professional futures trader from Sydney, Australia. Rowan has extensive experience trading commodities, bonds and equity futures in the Asian, European and US markets. Rowan holds a Bachelor of Finance and Economics degree and is focused heavily on Investment Finance and Quantitative Analysis.
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