Australian dollar drifting ahead of Aussie CPI

The Australian dollar is calm on Tuesday. AUD/USD is trading at 0.6773 in the North American session, up 0.03% on the day at the time of writing.

Australian CPI expected to drop to 3.4%

Australia’s CPI, which will be released early Wednesday, is expected to continue to decelerate. CPI eased from 4% to 3.8% in June and the July market estimate stands at 3.4%, which would be five-month low. If the inflation rate drops as expected or lower, it will support the case for the Reserve Bank of Australia to lower interest rates.

The RBA remains hawkish about rate policy and Governor Bullock has said that that the central bank won’t be cutting rates for at least six months. The RBA minutes from the August meeting noted that members had considered raising rates and that underlying inflation had fallen slowly and remained above the 2-3% target.

The markets are marching to a different tune and have priced in around 25 basis points in cuts by the end of the year and around 75 bps in cuts by May 2025. The RBA has said that it discussed raising rates at recent meeting but the markets are betting that cuts rather than hikes will be the next move. The RBA has held the cash rate at 4.5% since November 2023.

The Federal Reserve is poised to cut rates next month with a quarter-point move expected. Fed Chair Powell said on Friday that it was time to cut rates and the US dollar took it on the chin against the majors, with AUD/USD jumping 1.3%, its best daily performance this year. The US releases a key employment report on Sept. 6, two weeks before the rate decision, and a soft release will raise expectations for a half-point cut.
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AUD/USD Technical

• AUD/USD is testing resistance at 0.6779. Above, 0.6790 is a weak resistance line
• 0.6760 and 0.6749 are the next support levels

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