Elias Haddad of Brown Brothers Harriman (BBH) highlights that the AUD/USD pair is trading near the lower end of the recent range of 0.6900-0.7200. Inflation in February was slightly lower than expected, but Haddad expects Australian price pressures to accelerate as energy costs rise. With Q1 CPI due on April 29, markets are pricing in a 65% chance of an RBA hike of 25 basis points to 4.35% on May 5.

Energy-driven CPI keeps RBA on alert

“AUD/USD is trading near the lower end of the two-month range of 0.6900-0.7200. Inflation in Australia was slightly lower than expected in February but may accelerate in the coming months due to higher energy prices.”

“In February, the headline CPI fell by 0.1 point to 3.7% y/y (consensus: 3.8%), while the average trimmed CPI stood at 3.3% y/y (consensus: 3.4%) for the third month in a row.”

“Monthly CPI is the main measure of inflation in Australia, but the RBA remains focused on measures of core inflation based on quarterly CPI.”

“Indeed, the RBA warned last week that “inflation is likely to remain above target for some time and that risks have tilted further to the upside, including on inflation expectations.” The RBA also indicated that “developments in the Middle East remain highly uncertain but could increase global and domestic inflation under a wide range of possible scenarios.”

“Australia’s first quarter CPI data will be released on April 29, just ahead of the RBA’s May 5 interest rate decision, which sees a 25 basis point rise to 4.35% included in the 65% price.

(This article was created with the support of an artificial intelligence tool and has been reviewed by an editor.)