Australian CPI expected to jump, Aussie steady

The Australian dollar is showing limited movement on Tuesday. In the European session, AUD/USD is trading at 0.6482, down 0.01% on the day.

Australian CPI expected to jump to 2.3%

The markets are bracing for an acceleration in Australian CPI on Wednesday. The market estimate stands at 2.3% y/y, compared to 1.9% on June which was the lowest level in over three years. The 1.9% gain was below the Reserve Bank of Australia's 2-3% target range and enabled the RBA to lower rates earlier this month.

If inflation does rise as expected, it would complicate the central bank's plans to continue lowering rates in order to boost economic growth. The RBA minutes from the August meeting noted that inflation remains a concern with risks to inflation in "both directions".

The minutes indicated that members were in agreement that further rate cuts were needed this year but were unclear as to the extent of the easing. Members said that a faster pace of cuts would be appropriate if the labor market softened more quickly than expected or if there were negative developments in the global economy.

The minutes said that upcoming rate decisions would be data-dependent. Investors will be keeping a close eye on employment and inflation data, which are the most critical factors for the central bank in determining its rate path.

The Federal Reserve is widely expected to lower rates at the September meeting, after holding rates since December 2024. Federal Chair Powell's speech at Jackson Hole essentially confirmed a September cut and the US dollar responded with sharp losses against the major currencies. The key question is whether the Fed will cut again in December - that decision will be heavily influenced by the employment and inflation reports.