AU Q2 inflation surges but fears ease over supersized 75bp RBA rate hike

June quarter Australian inflation data has surged to 6.1%, but below consensus expectations easing fears of a supersized 75bp rate hike when the RBA meets next week. 

Headline CPI rose by 1.8% QoQ and 6.1% YoY. This was the highest reading since the introduction of the Goods and Services tax in the early 2000s

The RBA's preferred measure of inflation, the trimmed mean, increased by 1.4% QoQ and 4.9% YoY, above the market's expectations of 1.2%QoQ and 4.7%yoy.

Core inflation is now 190bp above the top of the RBA's 2-3% target band, and the annual trimmed mean was the highest since the ABS first published the series in 2003.

The most significant price rises were in

• New Dwelling purchases by owner-occupiers (+5.6%) driven by high building construction activity, combined with ongoing materials and labour shortages
• Automotive fuel (+4.2%) rose for the eighth consecutive quarter
• Furniture (+7.0%) due to increased transport and manufacturing costs.
• Vegetables (+7.3%) rose due to heavy rain flooding in Queensland and New South Wales, damaging crops and farm infrastructure.

While the trend of higher inflation towards the RBA's 7% target remains intact, the softer than expected headline print has prompted the interest rate market to erase all chances of a 75bp rate hike.

In its place, the interest rate market is cleanly priced from a 50bp rate hike when the RBA meets on Tuesday which would take the cash rate to 1.85%. The real surprise would be the delivery of a 25bp rate hike. 

Following the release, the AUDUSD fell from .6950 to a low of .6917, retreating from the resistance band at .6960/85, which includes the downtrend from April 2022 .7661 high.

While the AUDUSD remains below .6960/85 (closing basis), the downtrend remains intact. Aware that a sustained break/close at the end of this week (Post FOMC and Q2 US GDP) above .6985c would be an initial indication a tradable low is in place at .6681 and that a more substantial rally can develop.

Source Tradingview. The figures stated are as of July 27th ,2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation