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Consumer Price Index inflation holds steady at 0.2% vs. 0.3% expected Consumer Price Index inflation holds steady at 0.2% vs. 0.3% expected

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Consumer Price Index inflation holds steady at 0.2% vs. 0.3% expected – Crypto News

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Australia’s Consumer Price Index (CPI) rose 0.2% QoQ in the fourth quarter (Q4) of 2024, compared with the 0.2% increase seen in the third quarter, according to the latest data published by the Australian Bureau of Statistics (ABS) on Wednesday. The market consensus was for a growth of 0.3% in the reported period.

Annually, Australia’s CPI inflation eased to 2.4% in Q4 from the previous print of 2.8% and below the market consensus of 2.5%.

AUD/USD reaction to Australia’s Consumer Price Index data

The Australian Dollar (AUD) attracts some sellers following the inflation data from Australia. The AUD/USD pair is losing 0.41% on the day to trade at 0.6230, at the press time.

AUD/USD 15-min chart

Australian Dollar price this week

The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies this week. Australian Dollar was the weakest against the Swiss Franc.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   0.34% 0.12% 0.09% 0.63% -0.08% 0.46% -0.31%
EUR -0.34%   -0.21% -0.25% 0.29% -0.42% 0.13% -0.64%
GBP -0.12% 0.21%   -0.04% 0.49% -0.21% 0.34% -0.44%
CAD -0.09% 0.25% 0.03%   0.53% -0.17% 0.37% -0.39%
AUD -0.63% -0.29% -0.51% -0.53%   -0.70% -0.16% -0.94%
JPY 0.10% 0.43% 0.20% 0.17% 0.71%   0.55% -0.23%
NZD -0.46% -0.13% -0.34% -0.37% 0.17% -0.55%   -0.78%
CHF 0.31% 0.64% 0.43% 0.39% 0.93% 0.23% 0.77%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

This section below was published at 21:30 GMT as a preview of the Australian inflation data.

 

  • The Australian monthly Consumer Price Index is foreseen at 2.5% in December. 
  • Quarterly CPI inflation expected to ease further below 3%, with core figures nearing RBA’s goal.
  • The Reserve Bank of Australia will meet on February 18 to decide on monetary policy.
  • The Australian Dollar falls ahead of the announcement amid prevalent risk aversion. 

Australia will release fresh inflation-related data on Wednesday, and financial markets anticipate price pressures eased further at the end of 2024, paving the way for a Reserve Bank of Australia (RBA) interest rate cut when it meets in February.  

The Australian Bureau of Statistics (ABS) will publish two different inflation gauges: the quarterly Consumer Price Index (CPI) for the fourth quarter of 2024 and the December monthly CPI, which measures annual price pressures over the past twelve months. The quarterly report includes the Trimmed Mean CPI, the RBA’s favorite inflation gauge. 

The RBA has maintained the Official Cash Rate (OCR) steady at 4.35% since November 2023, claiming inflation needs to “sustainably” return to its target band of 2% – 3% before considering a rate cut. The latest Board meeting took place in December, and officials claimed they were “gaining confidence” that inflation was moving in the right direction.

It is worth remembering, however, that the RBA has a dual mandate, as full employment is also part of it. Nevertheless, inflation figures will be crucial to determine whether an interest rate cut is finally reaching Australian shores. 

What to expect from Australia’s inflation rate numbers?

The ABS is expected to report that the monthly CPI rose by 2.5% in the year to December, higher than the 2.3% posted in November. The quarterly CPI is foreseen to increase by 0.3% quarter-on-quarter (QoQ) and by 2.5% year-on-year (YoY) in the final quarter of 2024. Additionally, the central bank’s preferred gauge, the RBA Trimmed Mean CPI, is expected to rise by 3.3% YoY in Q4, easing from the 3.5% advance posted in the previous quarter.

Finally, the RBA Trimmed Mean CPI is forecast to increase by 0.6% QoQ, the lowest quarterly result since mid-2021. The anticipated figures will be below the central bank’s forecast, boosting the odds of an interest rate cut when the Board meets in February.

But it is not just about inflation falling to target. Economic growth in the country has been tepid, to say the least. Australian Gross Domestic Product (GDP) rose 0.3% in the third quarter of 2024 and by 0.8% since Q3 2023. Economic progress may not be part of the RBA’s mandate, but officials can not ignore the effects of monetary policy on economic growth. 

Meanwhile, Donald Trump has become the 47th president of the United States (US). The Republican leader has pledged to impose massive tariffs on imports, spurring concerns about global trade costs. 

Just recently, Treasury Secretary Scott Bessent pushed for new universal tariffs on US imports starting at 2.5% and rising gradually, the Financial Times reported on Monday. However, President Trump quickly responded by saying that he wanted much bigger uniform levies. Tariffs could affect global manufacturing costs and, hence, push inflation higher. With that in mind, central banks may refrain from trimming interest rates. 

However, Trump’s trade war against China may end up benefiting Australia. The US President may push tariffs into all major rivals, yet the higher levies will be on Chinese goods and services. With that in mind, RBA Governor Michelle Bullock recently noted that “If there are large tariffs on China, Chinese trade will probably try to find other ways to find an outlet. Australia might even be a beneficiary of that. So we might, in fact, find some deflationary impacts for Australia if it rolls out that way.”

How could the Consumer Price Index report affect AUD/USD?

Inflation figures are, then, crucial. Easing inflationary pressures coupled with Bullock’s recent comments will fuel bets on an RBA rate cut on February 18. 

Generally speaking, higher CPI figures will be bullish for the AUD amid expectations of a persistently hawkish RBA. However, the opposite scenario is also valid: easing inflation could push policymakers to shift towards a more dovish stance. 

Heading into the CPI release, the AUD/USD pair trades around 0.6250, down for a second consecutive day. 

Valeria Bednarik, FXStreet Chief Analyst, says: “The AUD/USD pair is gaining bearish traction ahead of Australian CPI figures amid a risk-averse environment. The USD is firmer as tariffs-related concerns dominate financial boards. Further slides are likely should inflation data result as expected or below expectations.  On the contrary, higher-than-anticipated figures may trigger some near-term AUD/USD gains, yet if fears prevail, the advance will likely be short-lived.”

Bednarik adds: “The AUD/USD pair could fall towards the 0.6200 region as an immediate reaction to the news, while a bearish breakout exposes 0.6164, the January 17 low. Should that level give up, the next bearish target is the January 13 low at 0.6130. Technical readings in the daily chart suggest a limited bullish potential. Still, a recovery beyond the 0.6300 threshold may result in the pair testing the 0.6330 price zone before fresh selling resurges.” 

Australian Dollar FAQs

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.

Economic Indicator

RBA Trimmed Mean CPI (YoY)

The Consumer Price Index (CPI), released by the Australian Bureau of Statistics on a quarterly basis, measures the changes in the price of a fixed basket of goods and services acquired by household consumers The YoY reading compares prices in the reference quarter to the same quarter a year earlier. The trimmed mean, which is a measure of underlying inflation, is calculated as the weighted average of the central 70% of the quarterly price change distribution of all CPI components in order to smooth the data from the more-volatile components.Generally, a high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.

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