Australia CPI expected to show inflation easing in July

The Australian Bureau of Statistics is set to release the July Consumer Price Index (CPI) on Wednesday at 01:30 GMT. Inflation is projected to have risen 3.2% from a year ago, a slight decrease from the 3.8% observed in June. However, the monthly CPI is expected to stand at 0.8%, following a contraction to -0.1% in the previous month.

The Trimmed Mean CPI, which the Reserve Bank of Australia favors, is anticipated to remain unchanged at 0.3%. The annual figure is expected to be slightly lower than the previous 3.6%, sitting at 3.5%. Prior to the announcement, the Australian Dollar (AUD) trades slightly below a multi-month high of 0.7180 against the US Dollar (USD), as the latter wanes due to geopolitical tensions.

Inflation data significantly influences the RBA's monetary policy decisions and is linked to global unrest, primarily driven by the Middle East conflict. RBA members noted that increased energy prices and strong demand for AI-related goods were contributing to inflationary pressures in certain economies. Despite the recent easing of inflation in the June quarter, the board anticipates trimmed mean inflation to stay above 3% until mid-2027.

Consequently, the latest inflation data will impact market expectations for future monetary policy decisions, consequently affecting the Australian Dollar. The Board opted to keep the Official Cash Rate (OCR) at 4.35% after deliberating whether a fourth rate hike this year was necessary. The upcoming inflation data will shape the market's outlook on the upcoming decision, likely influencing the AUD's movement.

The annual Australian CPI reached a peak of 4.6% in March, and the expected 3.2% reading should dampen expectations of further rate hikes in the near future, negatively impacting the AUD. A reading between the expected 3.2% and the previous 3.8% would be concerning and raise the odds of additional hikes, while a reading above 3.8% would trigger panic.

The AUD/USD pair currently trades near 0.7150, with Valeria Bednarik from FXStreet predicting a bullish technical outlook despite a technical lull. The pair could move towards the 0.7130 level, with support near 0.7135 and a potential push towards 0.7000 should the latter fail.