The Australian dollar maintained its early gains following the release of data showing an acceleration in consumer price inflation (CPI) in Australia. The monthly CPI rose to 5.2% on-year in August, in line with expectations and higher than the previous month. Although monthly CPI figures are volatile and not a great predictor of the Reserve Bank of Australia’s (RBA) quarterly CPI perspective, persistently high inflation increases the likelihood of the RBA maintaining its hawkish stance. Former RBA chief Philip Lowe also expressed concerns about wages and profits outpacing inflation targets. The AUD/USD is testing key resistance levels, and a break below support could trigger a downward trend.
Despite the positive CPI figures, concerns about the Chinese economy and geopolitical tensions continue to weigh on overall sentiment. Additionally, surging US yields have shifted the focus from risk appetite to higher-for-longer US rates. The RBA has already indicated that it expects inflation to return to its target range by late 2025. However, there are growing expectations in the market for another RBA rate hike early next year. Geopolitical uncertainties and the lack of an upward momentum on higher timeframe charts suggest that the path of least resistance for the AUD/USD remains sideways to downwards.
In summary, the Australian dollar held onto its early gains as Australia’s monthly CPI rose in August. The risk of persistent high inflation has led to speculations that interest rates will remain higher for a longer period. While the AUD/USD faces resistance and lacks upward momentum, the RBA is expected to raise rates further next year. Nevertheless, concerns over the Chinese economy and geopolitical tensions continue to dim sentiment. The AUD/NZD pair is testing key support levels, although it remains within a well-established range.