Aussie calm as inflation expectations jump

The Australian dollar has posted small gains on Thursday. AUD/USD is trading at 0.6654 in the European session, up 0.10% on the day.

Australian inflation expectations rises to 4.4%

This week’s inflation indicators have risen more than expected, an indication that inflation remains sticky and that the road to the Reserve Bank of Australia’s inflation target band of 2% to 3% will be bumpy.
On Wednesday, the Melbourne Institute Inflation Expectations rose to 4.4% in June, up from May’s 4.1% gain, which was a 2.5-year low. The reading comes a day after CPI accelerated to 4.0% in May, up from 3.6% in April and higher than the market estimate of 3.8%.

This was the highest inflation level since November 2023 and marked the third straight acceleration in headline inflation, a trend that has the RBA worried. With the battle against inflation stalling badly, the RBA could be forced to delay a rate cut until 2025.

With inflation not only failing to fall but moving higher, the specter of a rate hike is real. The RBA has stressed that a rate hike is on the table and discussed this possibility at the past two rate meetings. Ultimately, policy makers decided to hold the cash rate at 4.35%. Australia releases the first-quarter inflation report on July 31, just a week before the next RBA meeting. If Q1 inflation remains doesn’t decline, it could set up a rate hike from the central bank at the August meeting.

In the US, we’ll get a look at Final GDP (third estimate) later in the day. The market estimate stands at 1.4%, compared to 1.3% for the second estimate. The US economy has slowed down significantly in the first quarter, after a strong 3.4% gain in Q4 2023.
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AUD/USD Technical

• AUD/USD tested resistance at 0.6685 earlier. Above, there is resistance at 0.6729
  0.6635 and 0.6591 are the next support levels

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