The aussie weakened in the middle of Asian trading as statistics out of Australia indicated that consumer prices experienced a surprisingly softer increase in the June quarter, justifying the RBA’s last decision to hold interest rates steady and lengthening the odds for another rate hike.
On Wednesday, in the middle of the Asian session, the Australia Bureau of Statistics published CPI readings for the second quarter of the year. According to the numbers, headline CPI grew by 0.2% on a quarterly basis, instead of 0.4% as expected, falling below the previous month’s mark of 0.5% and reaching the lowest growth since the beginning of 2016. The main driver of this adjustment was the decrease in travel and accommodation prices (-3.2%) as well as in automobile prices (-2.5%) which offset price rises in hospital and medical services (4.1%). On a yearly basis, CPI fell to 1.9%, surprising analysts who anticipated that inflation would climb to 2.2% from 2.1% in the previous quarter.
Excluding 30% of the volatile products, the trimmed mean CPI was in line with expectations, standing flat at 0.5% quarter-on-quarter, while the annual figure slipped from 1.9% to 1.8%. Reducing price volatility even more (50%), the weighted median CPI was higher at 0.5% compared to 0.4% in the previous quarter, as analysts anticipated. The yearly change beat the forecast of 1.7% which was also the first quarter’s figure, rising slightly to 1.8%.
After the data release, the RBA Governor Philip Lowe said in Sydney he was “very comfortable” with holding interest rates steady at 1.5%, as inflation does not show any signs of approaching the target range of 2-3% so far. Instead, he stated, he was satisfied with the RBA’s accommodative policy as this strategy expands employment and therefore assists households to repay their debts which currently amount to 190% of their disposable income. Note that, full employment in June touched a multi-year high with unemployment remaining flat at 5.6%, while wage growth in the March quarter rose by 1.9% year-on-year for the third consecutive quarter. As the RBA Chief Philip Lowe and Deputy Governor Guy Debelle, who recently supported the view that there is no reason for the bank to follow its peers by tightening monetary policy, are in no rush to change their monetary strategy, the odds for another rate hike in the near future are receding.
Turning to the forex markets, the aussie reacted immediately to the data sinking by 0.50% against the dollar to $0.7896 and touching a one-week low.
