
Australian Dollar Holds Gains Rate Hike Expectations Rise Amid Mixed Economic Data. The Australian dollar has maintained its recent advance to around $0.666, hovering close to two-week highs. This stability is partly due to the greenback pulling back on data showing US inflation cooled in May, reinforcing expectations that the Federal Reserve will proceed with interest rate cuts this year.
Domestically, the economic landscape presents a mixed picture. Revised data showed that Australia’s June manufacturing activity contracted the most since May 2020, primarily due to a sharp decline in new orders. This contraction raises concerns about the health of the manufacturing sector and its potential impact on the broader economy.
However, there are positive signs on the inflation front. Last week, data revealed that Australia’s monthly CPI indicator increased by 4% annually in May, accelerating from 3.6% in April and exceeding market expectations of 3.8%. This unexpected rise in inflation has shifted market sentiment, increasing the odds of a Reserve Bank of Australia (RBA) rate hike in August. Consequently, markets have now priced out any chance of an RBA rate cut this year, signaling a potential tightening of monetary policy.
Despite the inflationary pressures, RBA Deputy Governor Andrew Hauser has urged caution. He warned against setting policy based on one hot inflation reading, emphasizing that the full second-quarter inflation report due at the end of July will provide more clarity. This cautious approach suggests that the RBA will carefully evaluate upcoming economic data before making any policy decisions.
Overall, the Australian dollar’s performance reflects a delicate balance between domestic inflation concerns and broader economic uncertainties. As investors and policymakers await more comprehensive data, the outlook for Australia’s monetary policy remains closely watched, with potential implications for the currency’s future trajectory. Australian Dollar Holds Gains Rate Hike Expectations Rise Amid Mixed Economic Data.