Australia CPI expected to show inflation easing in July

The Australian Bureau of Statistics (ABS) will publish the July Consumer Price Index (CPI) on Wednesday at 01:30 GMT. The report is expected to show that inflation rose 3.2% from a year earlier, easing from the 3.8% posted in June. The monthly CPI, however, is forecast at 0.8% following the -0.1% print from the previous month.

The ABS will also release the Trimmed Mean CPI, the Reserve Bank of Australia’s (RBA) favorite inflation gauge. The annual figure is expected to print at 3.5%, slightly lower than the previous 3.6%, while the monthly Trimmed Mean CPI is forecast to remain unchanged at 0.3%.

Ahead of the announcement, the Australian Dollar (AUD) trades a handful of pips below a multi-month high of 0.7180 against the US Dollar (USD), as the latter weakens amid geopolitical turmoil.

What to expect from Australia’s inflation rate data?

Inflation data is a critical factor in the RBA’s monetary policy decisions and is also related to geopolitical turmoil: the war in the Middle East is, no doubt, the primary source of mounting price pressures across the globe. And it is out of the RBA’s control.

“Members noted that higher energy prices and strong demand for goods used to develop AI services were adding to inflationary pressures in some economies. While core measures of consumer price inflation had not yet risen significantly following the onset of the Middle East conflict, members discussed the potential for these and other global developments to generate a more pronounced inflationary impulse. If so, this could push up Australian import prices and, in turn, consumer prices,” the minutes of the August monetary policy decision state.

Members also noted that inflation in Australia remained well above target, even after easing unexpectedly in year-ended terms in the June quarter, and expected trimmed mean inflation to remain above 3% until mid-2027.

The Board decided to leave the Official Cash Rate (OCR) unchanged at 4.35% after debating whether a fourth rate hike this year was necessary.

With that in mind, the upcoming inflation data would shape the market’s view on the upcoming monetary policy decision, and the Aussie will move in consequence. Annual Australian CPI peaked at 4.6% YoY in March. The anticipated reading of 3.2% should cool hopes of additional interest rate hikes in the near future, negatively affecting the Aussie.

A reading between the expected 3.2% and the previous 3.8% would be worrisome and raise the odds of additional hikes, while a reading above 3.8% would trigger panic. Market players will rush to bet on rate hikes and temporarily push the AUD higher, yet once the dust settles, the discouraging figure should play against the Australian currency.

Additionally, it is worth noting that, in the near term, Oil prices are retreating amid fresh hopes the US and Iran could resume negotiations. Market players are taking the headlines with a pinch of salt, but some relief is clear across financial boards.

How could the Consumer Price Index report affect AUD/USD?

As previously mentioned, inflation is expected to have eased further in July and approach the RBA’s range goal of 2% to 3%. Such a reading should have a limited, yet negative impact on the AUD. Ahead of the announcement, the AUD/USD pair hovers around 0.7150.

Valeria Bednarik, FXStreet Chief Analyst, notes: “From a technical point of view, the AUD/USD is bullish, although losing momentum. Still, technical readings in the daily chart suggest that buyers hold the grip despite the ongoing pause. The pair develops above all bullish moving averages, with the 20-day Simple Moving Average (SMA) about to cross above the 100-day SMA, both around 0.7070, providing a solid base and hinting at higher highs ahead. The same chart shows, however, technical indicators lack directional strength while holding well into positive territory.”

Bednarik adds: “The AUD/USD pair should take the 0.7080 peak to accelerate north, in which case, the next relevant level to watch is the 0.7130 price zone. Near-term support lies at 0.7135, ahead of the firmer one mentioned above around 0.7070. Should the latter give up, speculative interest could push the pair towards 0.7000 before buyers attempt to retake control.”