Cautious optimism on disinflation – ING

For the second consecutive month, there is tentatively encouraging inflation news for the Reserve Bank of Australia. The monthly CPI fell from 3.8% to 3.5% year-on-year in July. This was above the 3.4% consensus, but the slowdown in the stripped (ie core) average from 4.1% to 3.8% offset this, notes Francesco Pesole, FX strategist at ING.

AUD to test December 2023 highs at 0.6850

“AUD followed Australian bond yields higher immediately after the release but is now trading below 0.680. There are reasons to be cautiously optimistic about Australian disinflation at this point, but we still see market prices for an RBA cut in December as too accommodative and think easing will only start in 1Q25. Remember RBA rates are at 4.35%, which is still below expected Fed and RBNZ rates (both 4.50%) until the end of the year.”

“Some short-term bounce in the USD may put pressure on the AUD, but it seems too early to rule out testing the 0.6850 December-2023 highs.”