Fed’s Powell opens door to potential rate cuts at Jackson Hole
Australia’s June inflation report showed the trimmed mean easing to 2.6%, matching the RBA’s forecast and firming market bets for an August cut. AUD/USD held steady while the ASX 200 pushed higher towards record highs.
- Trimmed mean inflation cools in line with RBA’s view
- Disinflation in goods and services continues
- Markets fully priced for a RBA August rate cut
- AUD steady as ASX 200 tests record highs
AUD/USD Outlook Summary
Australia’s June quarter inflation report largely confirmed expectations, with the trimmed mean rate easing to 2.6%, just shy of the 2.7% expected by markets. The data firmed up bets for an August rate cut, with pricing now fully reflecting a 25 basis point move. Despite this, AUD/USD barely moved as traders focused on upcoming U.S. risk events, while the ASX 200 responded positively, testing record highs and showing renewed bullish momentum.
Disinflation Trend Intact
Australia’s June quarter inflation report delivered few surprises for the RBA. The trimmed mean rate, the bank’s preferred underlying measure, rose 0.6% for the quarter and 2.6% over the year, a touch softer than the 2.7% annual pace markets were looking for but in line with the forecasts the RBA issued in May. While still running above headline CPI, the steady deceleration in underlying pressures will likely reinforce the view that policy settings remain restrictive.
Source: ABS, David Scutt
Market prices excluding volatile items extended their disinflationary run, with goods and services inflation easing to 2.1% and 2.9% respectively. It marks the first time since Q1 2022 that both measures have sat comfortably inside the RBA’s 2–3% target band. On a six‑month annualised basis, market services inflation excluding volatiles slowed to just 0.9%, a sign that weakness in Australia’s private sector may be feeding into price outcomes.
Headline CPI rose 0.7% for the quarter and 2.1% annually, with softer fuel costs offsetting strength in housing, food and health. While these details mattered at the margin, the focus for markets remains on the continued moderation in the trimmed mean measure and what it signals for the path of rates into year‑end
Three RBA Rate Cuts Favored by December
Source: Bloomberg
Markets are fully priced for a 25 basis point reduction in Australia’s cash rate next month, taking it to 3.6%. Prior to the inflation report, pricing stood at 93%. While markets held a similar view earlier this month only for the RBA to shock by keeping the cash rate unchanged at 3.85%, the difference on this occasion is that it has confirmation from its preferred quarterly report that the underlying disinflationary trend remains intact. Looking further out, two rate cuts are favoured by year‑end, with the first fully priced by Melbourne Cup Day in November.
AUD/USD Finds Support at 50DMA
Source: TradingView
While the soft inflation report has implications for the immediate interest rate outlook, for AUD/USD it’s only one of many risk events that traders have to navigate over the next few days, including the July FOMC interest rate decision, the Q2 U.S. GDP report later today, and July nonfarm payrolls on Friday. As such, the inflation report has barely moved the dial for AUD/USD following its release.
AUD/USD continues to trade in an ascending channel established in April this year, finding buying support more recently at the 50‑day moving average. That’s the first downside level of note for traders to watch, with .6500 and channel support at .6475 the next after that. A break of the latter would put the July 17 low of .6455 and the 200‑day moving average in play. On the topside, .6550 and .6590 provided both support and resistance recently, with a push above the latter putting the July 24 swing high of .6625 on the radar.
Momentum indicators are providing an entirely neutral signal, putting increased emphasis on price action heading towards key risk events.
ASX 200 Testing Record Highs
Source: TradingView
While the Aussie dollar has barely reacted to the data, Australian stocks have with the benchmark ASX 200 bouncing strongly following the report, testing the record high of 8763 set last week. If the price can push meaningfully above last week’s high, it may be used for those looking to buy the break, allowing for longs to be established above with a stop beneath for protection against reversal. As a major big figure, 9000 looms as a level likely to be targeted if we do see a break. If 8763 holds, the intersection of uptrend and horizontal support at 8627 is a downside level to watch.
Bullish momentum is strengthening again, with RSI (14) moving further away from 50 while MACD is on the cusp of crossing the signal line from below above zero. That favours buying dips and bullish breaks.