Australian dollar steady as markets await key inflation data
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Daily Currency Update
The Australian dollar (AUD) was trading with a cautious tone on Tuesday as investors await the release of Australia’s August Consumer Price Index (CPI) data, due today. This closely watched report is expected to offer fresh insight into the trajectory of inflation and could prove pivotal for the Reserve Bank of Australia’s (RBA) monetary policy outlook. Ahead of the release, AUD/USD is holding near the 0.6600 level, stabilizing after last week’s retreat from highs around 0.6700, as traders reassess their positions in the face of growing global and domestic rate uncertainty. Market participants are expected to look beyond headline figures—potentially distorted by temporary factors such as electricity subsidies—and focus instead on core and trimmed mean measures, which provide a clearer picture of underlying inflation dynamics. Persistent strength in non-discretionary components like services, rents, and housing-related costs would likely fuel speculation that inflation remains too high for the RBA to confidently rule out further tightening. A stronger-than-expected CPI print could reignite market expectations of additional rate hikes or at least extend the projected duration of the current policy stance, lending support to the AUD through improved yield appeal. On the other hand, a softer inflation reading may reinforce the narrative that the RBA’s tightening cycle has peaked, potentially weighing on the currency as traders shift focus toward a more dovish long-term outlook. The data also holds broader market implications, with Australian government bond yields, equity indices, and short-term interest rate futures all likely to react sharply to any deviation from expectations. With global central banks, particularly the U.S. Federal Reserve, signaling a “higher-for-longer” approach, Australia’s inflation path will be closely scrutinized for signs of divergence, making Wednesday’s CPI print a key determinant of near-term sentiment across AUD-linked assets.Key Movers
Investors are keenly awaiting Federal Reserve Chair Jerome Powell’s speech today, seeking clarity on the current state of the U.S. labor market and the likely trajectory of interest rate cuts in the near term. Powell’s remarks are expected to provide important cues on how the central bank views ongoing economic conditions and inflation dynamics, which will influence the pace and scale of monetary easing. Last week, the Federal Reserve reduced its benchmark interest rate by 25 basis points to a target range of 4.00%–4.25%. This decision marked a cautious shift amid signs that the U.S. labor market is cooling, even as inflation remains stubbornly above the Fed’s long-term target of 2%. The central bank’s updated “dot plot” forecast signaled that policymakers anticipate further rate cuts, with the federal funds rate potentially declining to around 3.6% by the end of the year. Despite this easing signal, the Fed remains vigilant as inflationary pressures continue to pose a challenge, particularly in areas such as housing costs and services. Powell’s speech will be closely dissected for any indications on how the Fed plans to balance its dual mandate of promoting maximum employment while achieving price stability. Market participants will also be looking for clues on how external factors, including global economic developments and financial market volatility, might influence the central bank’s future policy decisions. The speech comes at a critical juncture, with investors adjusting their expectations for interest rates and reassessing risk appetite across asset classes. A more dovish tone from Powell could reinforce expectations of a steady easing path, support risk assets and putting downward pressure on the U.S. dollar. Conversely, a cautious or hawkish stance could signal the Fed’s continued focus on combating inflation, potentially leading to increased market volatility. Overall, today’s speech will be a key event for shaping market sentiment and providing guidance on the Fed’s approach to navigating a complex economic environment in the months ahead.Expected Ranges
- AUD/USD: 0.6500 - 0.6700 ▲
- AUD/EUR: 0.5500 - 0.5700 ▲
- GBP/AUD: 2.0400 - 2.0600 ▼
- AUD/NZD: 1.1150 - 1.1350 ▲
- AUD/CAD: 0.9100 - 0.9300 ▼