Australia Inflation Comes in Cool to Support an RBA Pause on Policy

In a quiet final week of Q1, the Australian economy was in the spotlight. Following better-than-expected but lackluster retail sale figures on Tuesday, Australian inflation figures drew interest this morning.

The monthly CPI indicator increased by 6.8% in February versus 7.4% in January. Economists forecast the CPI indicator to soften to 7.1%.

According to the ABS,

• Prices for housing (+9.9%), food & non-alcoholic beverages (+8.0%), and transport (+5.6%) saw the most significant annual price increases in February.
• Holiday travel & Accommodation prices softened, with prices rising by 14.9% in February compared with 17.8% in January.
• House price pressures also eased despite making the most significant contribution to the February headline figure. Housing prices increased by 10.4% in January.
• While headline housing prices softened, rent prices remained elevated, which could be a concern for the RBA.
• Automotive fuel price pressures also subsided, with prices up 5.6% in February versus 7.5% in January and 10.8% in December.

Following the latest retail sales figures, the RBA needed to see a softer inflationary pressure to support the pause theory. Today’s figures give the RBA reason to hit the pause button.

According to the RBA meeting minutes from March, board members agreed to consider hitting pause next month. Members cited concerns about the economy, with economic indicators coming in weaker than expected.

AUD/USD Reaction to the Australian Inflation

Ahead of the Australian Inflation report, the AUD/USD rose to a pre-stat high of $0.67131.

However, in response to the CPI Report, the AUD/USD fell to a session low of $0.66870 before steadying.

This morning, the AUD/USD was down 0.23% to $0.66927.

Next Up

Looking toward the US session, it is a quiet day on the US economic calendar. The housing sector will be in the spotlight, with pending home sales due out. With the markets focused on Fed monetary policy intentions, the figures should have limited influence on the AUD/USD pair.

However, the second day of banking sector testimony on Capitol Hill and Fed chatter could move the dial. Warnings of a credit crunch would weigh on the AUD/USD.

Investors should also monitor Fed chatter on monetary policy and the US economy.