AUSTRALIAN DOLLAR, INFLATION EXPECTATIONS, TALKING POINTS:
- Australian consumer inflation expectations slid in July
- Persistently low consumer price acceleration is among the Reserve Bank of Australia’s biggest headaches
- The Australian Dollar remains pressures
The Australian Dollar slipped just a little on Thursday as official data found consumers even less concerned about inflation than they had been in the previous month.
Consumer inflation expectations came in at 3.9% on the year for July, below the 4.2% seen in June. This probably will not please interest rate setters at the Reserve Bank of Australia. Low inflation is one of their key concerns at present and shoppers’ expectations of further price rises are a key component of policy.
Annualized Australian Consumer Price Inflation has been below the RBA target band’s lower bound of 2% for most of the time since 2014. Its stubborn weakness is perhaps the main reason why local interest-rate futures markets fail to fully price even a single quarter-point increase in the record-low, 1.5% Official Cash Rate either this year or next.
This contrast between this prognosis and the aggressive interest-rate hawkishness of the US Federal Reserve has weighed heavily on AUD/USD.
This pervasive backdrop is always likely to reassert itself and stymie Aussie bulls, who have in any case to struggle with the possibility of new trade war headlines of the sort, which have already weighed on the currency. We can see an example of this on the daily chart below. AUD/USD briefly traded above its previous range only to slide back into it this week as the US contemplated new tariffs on yet more Chinese imports.
The Australian Dollar can act at the foreign exchange market’s favorite liquid China-growth proxy given its home country’s famed raw material export links with China.
Technical focus now is on the base of that support band which has so far held AUD/USD bears in check. Should it fail to do so on another test, which looks likely, the pair will be down to lows not seen since the start of 2017.