Australia’s Consumer Price Index (CPI) climbed by 3.0% in the year to August, following a 2.8% increase reported in July, the latest data published by the Australian Bureau of Statistics (ABS) showed on Wednesday.

The market consensus was for 2.9% growth in the reported period.  

Market reaction to Australia’s August CPI inflation

The Australian Dollar (AUD) attracts some buyers following the employment data. At the time of writing, the AUD/USD pair is trading 0.02% higher on the day to trade at 0.6600.

Australian Dollar Price Last 7 Days

The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies last 7 days. Australian Dollar was the strongest against the New Zealand Dollar.

USD
EUR
GBP
JPY
CAD
AUD
NZD
CHF

USD

0.56%
1.02%
0.90%
0.77%
1.13%
2.12%
0.82%

EUR
-0.56%

0.43%
0.31%
0.23%
0.69%
1.68%
0.25%

GBP
-1.02%
-0.43%

-0.10%
-0.20%
0.11%
1.10%
-0.26%

JPY
-0.90%
-0.31%
0.10%

-0.12%
0.34%
1.23%
-0.21%

CAD
-0.77%
-0.23%
0.20%
0.12%

0.43%
1.39%
0.02%

AUD
-1.13%
-0.69%
-0.11%
-0.34%
-0.43%

1.00%
-0.44%

NZD
-2.12%
-1.68%
-1.10%
-1.23%
-1.39%
-1.00%

-1.38%

CHF
-0.82%
-0.25%
0.26%
0.21%
-0.02%
0.44%
1.38%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).

This section below was published at 23:26 GMT on Wednesday as a preview of the Australia’s monthly CPI inflation report

Australian Monthly CPI Overview

The latest round of month-on-month Australian Consumer Price Index (CPI) inflation figures will kick off the Antipodean trading session on Wednesday at 01:30 GMT, or 11:30 Australian Eastern Standard Time. Australian inflation metrics are expected to show a second slight uptick, with Australian CPI expected to tick up to 2.9% YoY in August, rising from 2.8% the month before.

How could it impact AUD/USD?

Typically, a higher CPI print will support the Australian Dollar (AUD), and could see the Aussie rise against the US Dollar (USD), while a downside miss against forecasts would see AUD/USD retreat. With inflation continuing to run a spot higher than the Reserve Bank of Australia’s (RBA) top-line targets, the RBA could quickly run out of room to provide economy-supporting interest rate cuts.

However, as noted by FXStreet’s Pablo Piovano: “With prices still running hotter than target, policymakers are reluctant to cut too quickly. Policymakers must strike a balance between supporting growth and preventing inflation from escalating.

Even with global uncertainty swirling, Australia’s economy looks more resilient than expected. Early reads for September suggest Manufacturing PMI may ease to 51.3 and Services to 52.0, but both remain comfortably in expansion territory.

Other data have been firmer too: Retail Sales rose 1.2% in June, the trade surplus widened to A$7.3 billion in July, and business investment ticked higher in Q2. GDP also surprised, up 0.6% QoQ and 1.8% YoY.

The labour market is showing a few cracks, though. Unemployment held steady at 4.2% in August, but total employment dropped by 5.4K.”

Economic Indicator

Monthly Consumer Price Index (YoY)

The Monthly Consumer Price Index (CPI), released by the Australian Bureau of Statistics on a monthly basis, measures the changes in the price of a fixed basket of goods and services acquired by household consumers. The indicator was developed to provide inflation data at a higher frequency than the quarterly CPI. The YoY reading compares prices in the reference month to the same month a year earlier. A high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.

Read more.

Australian Dollar FAQs

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.