Australian inflation surges, Aussie dips

The Australian dollar is in negative territory on Wednesday. In the European session, AUD/IUSD is trading at 0.6468, down 0.40% on the day.

Australian CPI jumps to 2.8%

Australia's CPI for July surprised on the upside, jumping to 2.8% y/y. This followed a 1.9% gain in June and was above the market estimate of 2.3%. The spike in inflation, the highest level since July 2024, was driven by a sharp increase in electricity prices due to the end of government electricity rebates for many households. The trimmed mean, a key gauge of core CPI, rose to 2.7% in July from 2.1% in June.

The surprise jump in inflation has dampened expectations for a September rate cut. The money markets have reduced the probability of a rate cut to 22%, down from 30% before the inflation release.

Despite the hot inflation report, the Reserve Bank is expected to continue its easing cycle, with a 61% probability of a cut in November. The central bank remains very concerned about inflation but is also focused on employment, with the labor market showing signs of weakening.

The minutes of the RBA's August meeting said that upcoming rate decisions would depend on the data. The RBA meets next on September 19 and there are three key releases in September prior to the meeting - inflation, GDP and employment. The RBA has surprised the markets before and if these upcoming releases show a drop in economic activity or inflation, the RBA could respond with a rate cut next month.

Trump says he has fired Fed Governor

The nasty feud between the Federal Reserve and Donald Trump has taken another twist, as the President said he had removed Fed Governor Lisa Cook due over charges that she made false statements on mortgage applications. The Fed says that Trump does not have authority to fire Cook. This latest spat further undermines the credibility of the US and could hurt the US dollar.

AUD/USD technical

• AUD/USD has dropped below support at 0.6486 and is testing 0.6476. Below, there is support at at 0.6460.
• There is resistance at 0.6502 and 0.6512.