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The Australian Dollar was softer after monthly inflation data from Australia was lower than expected in January.
The Monthly Consumer Price Index Indicator reached 2.5% year-on-year, which was softer than the 2.6% the market was positioned for and explains why the currency was broadly lower on the day.
The Australian Dollar-to-U.S. Dollar exchange rate (AUD/USD) extends a pullback from Friday's high at 0.64 to 0.6330.
"AUD/USD eased modestly further after the weaker than expected Australian CPI for January," says Joseph Capurso, Head of International Economics at Commonwealth Bank of Australia.
The Pound-to-Australian Dollar exchange rate (GBP/AUD) rose to a high of 2.0 following news domestic inflation reached 2.5% in the 12 months to January.
The chart below shows the price action helps cement support at 1.98, allowing for a rise into resistance at 2.00 and buttressing 2025's sideways trend:
Above: GBPAUD at daily intervals.
According to the ABS, softer housing inflation, some weakness in volatile items, and the annual re‑weight of the CPI contributed to the undershoot.
The trimmed mean measure of core inflation, which is particularly relevant to Reserve Bank of Australia (RBA) policymaking, ticked up to 2.8%/yr, as expected.
The RBA cut interest rates on February 18 but said inflation pressures were still too high to commit fully to further rate cuts.
The messaging from the RBA suggests it would want to see a more meaningful and protracted decline in inflation if it were to shift gears and deliver a series of cuts.
Commonwealth Bank of Australia's economists reviewed the numbers and think the current trend will allow the central bank to cut again in May, sooner than the market consensus expects.
Economists at Standard Chartered disagree, expecting only one more 25bps cut in Q3, instead of two cuts in Q3 and an additional cut in Q2, as previously forecasted ahead of the mid-February RBA decision.
They now project a year-end RBA cash rate of 3.85%, up from its prior estimate of 3.35%.
Whether the rate cut falls in Q3 or Q2 will be important in determining the Aussie Dollar's outlook. An earlier cut opens the door to additional cuts in 2025, which would weigh on the currency.
A later cut implies a shallow approach to cuts, which will offer it support.