Monthly Wrap: AUD – Strong CPI boosts the Australian dollar

Key takeaways:  

• Hawkish RBA bets underpin AUD 

• Economic pessimism hampers the ‘Aussie’ 

• AUD monthly lows: £0.51, €0.60, $0.66, NZ$1.07, C$0.90 

• AUD monthly highs: £0.53, €0.63, $0.68, NZ$1.10, C$0.92 

The Australian dollar (AUD) trended higher overall last month, after beginning June on the back foot amid a weakening manufacturing PMI. 

Slumping company profits also weighed on the ‘Aussie’, as analysts suggested that companies could be stockpiling rather than accounting for surging demand, a cautious sign for the economy. 

Following this, Australian GDP printed below forecasts, reporting 0.1% growth during the first quarter of 2021. While this marked the tenth consecutive period of quarterly growth, it also showed the softest expansion in six months. 

Slumping business confidence then dented AUD, marking the first negative reading in economic sentiment since November 2023. As price and cost growth measures burgeoned in May, renewed concerns over inflationary pressures and falling unemployment cushioned AUD’s downside.  

Mid-June saw the RBA maintain its current base rate of 4.35%, as robust jobs data and sticky inflation saw investors pricing in a gentle easing cycle which will most likely begin towards the end of the fourth quarter. 

Accompanied by hawkish RBA guidance, AUD surged against the majority of its peers, as the central bank Governor suggested that further interest rate hikes have not yet been ruled out. 

As the month neared its end, Australia’s monthly CPI indicator reported a stronger-than-expected rise in inflation, supporting RBA’s hawkish rhetoric and underpinning the Australian dollar.  

Market sentiment also played a significant role in AUD movement throughout the month. Renewed global inflation concerns and shifting Federal Reserve interest rate speculations saw a shifting market sentiment rock the risk-sensitive ‘Aussie’. 

Looking to the month ahead, confirmation of steady domestic unemployment could lend AUD modest support.  

Rising consumer inflation expectations could further bolster RBA rate hike bets, alongside any potentially hawkish commentary from policymaker John Simon’s upcoming speech.  

As July nears an end, easing CPI expectations could hamper AUD exchange rates, dampening hopes of further RBA interest rate hikes.