AUD/USD: Decelerating inflation to dampen the aussie as reinforces RBA's dovish stance – ING

Australian policymakers are not turning any less dovish. In the week ahead, AUD will face the test of 3Q CPI data out of Australia. Softening price pressures are set to underpin the Reserve Bank of Australia’s (RBA) dovish stance, weighing on the pound, economists at ING report.

Decelerating inflation to argue in favour of RBA dovishness

“The Reserve Bank of Australia intervened for AUD1 B on Friday to defend its 0.10% yield target on the April 2024 government security.”

“The Evergrande story in China appears to have taken a less concerning path, and this is clearly benefitting the highly exposed AUD. Still, we think there were indications that the market had already turned quite relaxed on the impact of the Evergrande debt crisis, and it seems hard to see any more significant upside room for AUD on the back of this story.”

“Markets are widely expecting a deceleration from the 3.8% 2Q figure as covid restrictions generated some deflationary pressures in late summer. Anyway, decreasing price pressures should all but underpin the RBA’s dovish stance and we think the release may prompt some re-pricing of tightening expectations (40bp priced in for the next year) and weigh on AUD.”