Australian Dollar: RBA inflation focus underpins carry – BBH
Brown Brothers Harriman’s (BBH) Elias Haddad notes AUD/USD is holding above 0.7200 as Australian sentiment softens but inflation keeps the Reserve Bank of Australia (RBA) on alert.
BBH analyst Elias Haddad points out that the Australian Dollar is trading above 0.7200, supported by Australia's softened sentiment and inflation concerns for the Reserve Bank of Australia (RBA). He notes that the trimmed mean Consumer Price Index (CPI) and stronger GDP growth suggest a 25 basis points hike to 4.60% by the end of September, though the RBA may delay the decision until November 3.
Haddad also highlights the attractiveness of Australia's carry trade and strategic exposure to commodities like energy, AI, and defense as key factors behind the AUD. Despite September and August Australian consumer and business sentiment weakening, respectively, inflation remains the RBA's top priority. Assistant Governor Sarah Hunter warns that if inflation exceeds expectations, the Board may raise interest rates to control it.
July's trimmed mean CPI stood at 3.6% y/y, surpassing the RBA's 3.3% year-end forecast, while real GDP growth in Q2 reached 2.1% y/y, exceeding the RBA's 1.9% forecast. The data supports a 25bps hike to 4.60% on September 29, with 70% of traders pricing it in. However, the RBA may wait until November for further assessment of August's and Q3 CPI prints on September 30 and October 28, respectively.
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