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AUD/USD extends gains as Australian CPI rises in July
The Reserve Bank of Australia appears to be signaling a higher chance of an earlier hike, while AUD strength is still tempered by upcoming US PCE and Jackson Hole event risk for the dollar.
AUD/USD extended gains for a second straight session, trading around 0.7180 in European hours on Wednesday, as the Australian economy posted firmer inflation data. Australia’s CPI rose 3.5% year over year in July, compared with 3.8% in June, and exceeded the market forecast of 3.2%.
The report also showed a 1.0% month over month increase in July versus the prior 0.1% decrease, beating an estimated 0.8% rise, while the trimmed mean CPI increased 0.5% month over month and 3.6% year over year. FXStreet notes that the Reserve Bank of Australia remains the key driver for the currency, with market expectations for tightening still subdued.
MUFG said pricing for a “full rate hike” in Australia is not seen until February 2027, but pointed to RBA communication as shifting the near term risk profile. The firm argued that minutes from the August RBA meeting suggest the risk of another hike sooner is higher.
Despite the CPI tailwind for the Australian dollar, upside may be limited as the US dollar gains support ahead of the upcoming US Personal Consumption Expenditures release. Market participants are also watching Fed Chair Kevin Warsh’s speech at the Jackson Hole symposium on Friday for signals on a potential September rate move, according to FXStreet.