Australian consumer price index y/y release of 31 July 2024 and it's impact to the market
1. Expected Headline CPI: 3.8% y/y (up from 3.6% in Q1).
2. Trimmed Mean Inflation: Expected to hold steady at 4.0%.
3. Retail Sales for June: Expected to slow to 0.2% m/m from 0.6% in May.
Implications:
1. CPI Data:
- The increase in headline CPI to 3.8% suggests that inflation is rising, which is above the Reserve Bank of Australia’s target range of 1-3%.
- Higher inflation increases the likelihood of the RBA considering rate hikes to control inflation.
2. Retail Sales Data:
- The slowdown in retail sales to 0.2% from 0.6% indicates weaker consumer spending, which could be a sign of a cooling economy.
- Weak consumer spending might caution the RBA against aggressive rate hikes to avoid tipping the economy into recession.
Conclusion:
- Overall: The higher-than-expected CPI suggests a stronger case for a rate hike, which generally would strengthen the AUD.
- Retail Sales: The weaker retail sales might offset some of the bullish sentiment as it indicates potential economic slowing.
Given these points, the net impact on the AUD could be mixed but leaning towards strengthening if the RBA focuses more on the inflationary pressures and moves towards a rate hike. However, if the retail sales data weighs more heavily on their decision, the AUD could be seen as weakening or having a muted response.
Note; The market's overall reaction will depend on which factor—rising inflation or slowing consumer spending—carries more weight in the eyes of investors and the RBA.
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