AUD/USD rises heading into pivotal Australian inflation data
The AUD/USD reacts ahead of Australia's CPI release on January 29, 2025. Analysts predict a 2.5% headline inflation, influencing RBA's February rate decision.
Australia’s official quarterly CPI Index data is released on Wednesday, 29th of January, 2025 and may determine whether the central bank cuts interest rates in February. Forecasters predict that headline CPI moderated to 2.5% in the December quarter, massaged lower by the Australian Government’s energy subsidies. The more critical trimmed mean figure is projected to drop to 3.3%.
The data follows the release of the monthly Australian CPI indicator at the start of January which showed a weaker than expected inflationary pulse in the economy in November. It raised hopes that trimmed mean CPI for the December quarter would undershoot the RBA’s forecasts published in its November Statement on Monetary Policy, opening the door to a possible February cut.
(Source: RBA)
Going into the official data, the markets are implying (as of the 24th of January, 2025) a slightly lower than 80% chance of a rate cut from the RBA in February. The pricing is predicated on the assumption that trimmed mean CPI will rise less than the 3.4% and provide the RBA scope to begin lowering interest rates at its next meeting. All else being equal, an ‘at expectation’ figure will consolidate expectations for a cut next month. Meanwhile, a number below it will likely lift the implied probabilities and a result at 3.4% would spark a sharp unwind of them, given it aligns with the RBA’s existing case for keeping monetary policy steady.
(Source: ASX)
While it has not been the primary driver, expectations of an RBA rate cut has been a factor in the AUD/USD’s downtrend. The stronger factors have been a strong US economy and bets of fewer US Federal Reserve rate cuts, weak Chinese economic activity, and trade-war risks. An ostensibly more considered approach to tariffs on China by the Trump administration has seen the AUD/USD break out of its downward trend channel, with resistance at roughly 0.6350 the next key level to watch for the pair on the upside. Meanwhile, technical support may be found at the pair’s recent low around 0.6130, a break of which would indicate a continued downtrend.
(Source: Trading View)
(Past performance is not a reliable indicator of future results)