Headline CPI growth in Australia fell below market expectations on Wednesday, disappointing those seeking reasons for potential RBA hawkishness at their August 1st meeting.
The Australian Bureau of Statistics (ABS) said on Wednesday morning that consumer prices rose in the second quarter by just 0.2% – down on the market forecast for 0.4% and below 0.5% in the first quarter.
Importantly, today’s numbers take annualized inflation in Australia down to 1.9% and outside of the RBA’s inflation target band of 2-3%. Annual inflation had been forecast at 2.2% and had previously been 2.1%.
Quarterly inflation data is “arguably the most important data release in Australia,” according to the Business Insider’s David Scutt, and it was no surprise that the Australian dollar fell following the ABS’ announcement.
The Australian dollar fell between 0.5% and 0.6% against most of the majors within minutes of the data’s release. As of writing a little after 5am GMT, AUD/USD, AUD/JPY and AUD/NZD sit close to session lows at $0.7888, ¥88.34 and N$1.0642 respectively.
Preventing further losses in the Aussie was the not-so-small matter of ‘core’ inflation remaining unchanged from the first quarter and matching analyst expectations. The two ABS measures of core inflation – ‘CPI excluding volatile items’ and ‘trimmed mean CPI’ – remained at 1.5% and 1.8% respectively.
Speculation has been rife in recent weeks that the RBA will soon join other major central banks in switching to a more hawkish, upbeat stance – a monetary policy stance that would favour tightening (hiking interest rates) rather than neutrality.
This speculation was started in June when former RBA board member and renowned economist John Edwards said that, in his opinion, as many as eight interest rate hikes by the RBA across 2018 and 2019 were “distinctly possible,” and that tightening of monetary policy could start earlier than markets were expecting.
The Australian dollar received an even bigger jolt following the release of minutes from the RBA’s July 4th meeting in which it emerged that the bank had discussed a neutral interest rate of 3.5% (the current rate is only 1.5%). Rumours of an imminent hike were quelled however, when on Friday the RBA’s deputy governor, Guy Debelle, told business leaders in Adelaide that “no significance should be read into the fact that the neutral rate was discussed.” As if to say “nothing to see here,” Debelle added that “[during] most RBA meetings, the board allocates some time to discussing a policy-relevant issue in more detail, and on this occasion it was the neutral rate.”
This “will they, won’t they?” dynamic is likely to have taken a turn towards “they won’t” after Wednesday’s data, but regardless, the Australian dollar may remain supported at its current high levels due to other factors, such as positive risk sentiment, demonstrated by record highs in stock markets, and due to renewed stability in the price of iron ore.
Iron ore, which is Australia’s largest export, has now held above $65 per ton in the NYMEX futures market for a week-and-a-half, and this stability following a $10 rally makes a refreshing change in light of the commodity’s tumble from prices near $90 in March to $55 in mid-June.
Australians Haven’t Had It This Good Since 2015
Against the US dollar and Japanese yen, the last time the Australian dollar was simultaneously buying more than $0.78 and ¥88 was in 2015.
Against more exotic currencies – for more exotic holidays – such as the Philippine peso (now above ₱40.0) and Indonesian rupiah (above Rp.10,500), Australians haven’t had it this good since 2014 and 2015 respectively.
Now makes a great time for those in Australia to change their money for upcoming holidays, to remit money home, buy foreign goods or make other international payments.
Before changing your money, always check how much you can save by using a BestExchangeRates FX provider. By using our online comparison calculators for AUD travel cash and AUD foreign currency transfers, readers will likely save big on the rip-off exchange rates offered at a typical bank or Bureau de Change.
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