FX Empire – Australian Consumer Inflation Expectations
With inflation, the Australian economy, and the RBA under the spotlight, what have the experts said?
Economists and Mixed Views on RBA Interest Rate Expectations
In June, Bloomberg TV APAC Chief Markets Editor David Ingles had this to say about the hotter-than-expected Monthly CPI Indicator,
“After a third hotter-than-expected Australia inflation report (note this is the monthly report not the broader quarterly data set), cash rate futures and also swaps are currently attaching a near 50-50 probability of an RBA rate HIKE in September.”
However, economists remain divided, as households face more strain under the inflation environment.
Westpac Chief Economist Luci Ellis forecast a November RBA interest rate cut.
As investors grapple with mixed messages about an RBA rate hike, how will economic data from China impact the AUD/USD pairing?
On Wednesday, July 10, crucial inflation numbers from China will draw investor attention.
Economists forecast the annual inflation rate to rise from 0.3% in May to 0.4% in June. Higher inflation could signal an improving demand environment. A pickup in demand could boost the Australian economy, which has a trade-to-GDP ratio of over 50%. Additionally, 20% of the Australian workforce is in trade-related jobs.
Improving trade terms with China could boost Australian exports and trade-related jobs.
For perspective, China accounts for one-third of Australian exports.
With trade a consideration for the Australian economy, trade data from China will also need consideration on Friday, July 12.
Economists expect imports and exports to increase 8.0% year-on-year in June after rising 7.6% in May. Furthermore, economists predict imports to advance 2.9% year-on-year after an increase of 1.8% in April.
Forecasts suggest an improving demand environment.
Is the Chinese economy as bad as the markets think?
Research service firm East Asia Econ released a paper on the Chinese economy on Saturday, July 6, stating,
“Despite the collapse of consumer confidence, consumption in China isn’t so weak. And despite the apparently soft labour market, wage growth isn’t bad either.”
Meanwhile, the US economic calendar remains crucial for near-term AUD/USD trends, with the US CPI Report a critical data release.
US CPI Report: Will Inflation Cool Enough to Cement a September Rate Cut?
The US CPI Report will be in focus on Thursday, July 11.
Economists forecast the US core inflation rate to remain at 3.4% in June. Furthermore, economists expect the annual inflation rate to ease from 3.3% to 3.1%.
Softer-than-expected inflation numbers could cement bets on a September Fed rate cut.
On Tuesday, July 2, Fed Chair Powell said inflation trends were promising but highlighted wage growth remained elevated. Wage growth slowed in June.
For context, core inflation has softened over the past 12 months, falling from 4.8% in June 2023 to 3.4% in May 2024.
