The AUD/USD pair was trading higher around 0.6790 on Thursday during Asian hours, supported by stronger-than-expected Australian Consumer Price Index (CPI) inflation data. This data has postponed anticipated rate cuts by the Reserve Bank of Australia (RBA), providing a boost to the Australian dollar.
On Thursday, the Australian Bureau of Statistics reported a 2.2% drop in private capital spending for the second quarter (Q2), reversing the 1.0% increase seen in the previous quarter. This decline fell short of the anticipated 1.0% increase. Notably, spending on buildings and structures fell by 3.8%, while expenditure on plant and machinery decreased by 0.5%.
Despite the monthly CPI inflation easing to 3.5% from 3.8% in June, it remained above expectations of 3.5%. This unexpected resilience in inflation has tempered speculation of an imminent rate cut by the RBA, supporting the Australian dollar against the USD. Market participants are now awaiting Australian Retail Sales data, set to be released on Friday, for further insights.
In contrast, the US Federal Reserve has hinted at potential rate cuts, which has exerted downward pressure on the USD. Fed Chair Jerome Powell indicated at last week’s Jackson Hole symposium that “the time has come for policy to adjust,” suggesting a shift in monetary policy. The ongoing weakness in the labor market is also influencing the Fed’s decision-making. The upcoming US Nonfarm Payrolls report for August will be closely scrutinized. Additionally, traders will be watching for the second estimate of US GDP growth for Q2, which is projected to show a 2.8% expansion.
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