Australian inflation data released this morning pushed back expectations for a Reserve Bank of Australia (RBA) rate cut from September to November, bolstering AUD/USD.

AUD/USD News

This morning's release of Australian inflation data showed a significant uptick, leading the market to question the likelihood of a Reserve Bank of Australia (RBA) rate cut. As a result, AUD/USD surged to a high of 0.6530 during the Asian session before moderating to around 0.6500 in the European session. The Australian dollar also saw gains against other major currencies.

According to the Australian Bureau of Statistics (ABS), the Consumer Price Index (CPI) rose by 1.0% (q/q) in the first quarter of this year, surpassing the consensus estimate of 0.8% and marking a notable increase from the previous quarter's 0.6% growth.

Previously, consensus expectations had projected a slowdown in Australia's annual inflation from 4.1% to 3.4% in the first quarter of 2024. However, the quarterly data showed price increases that supported the annual inflation rate at 3.6%, well above the RBA's target range of 2-3%.

Earlier market sentiment suggested the possibility of RBA rate cuts starting as early as September. However, experts now anticipate that this inflation data will prompt the RBA to postpone rate cuts until November or the following year. This outlook has supported the Australian dollar exchange rate, barring any unexpected shifts in global risk sentiment.

"This overshoot likely removes any chance of RBA cuts this year," said James Kniveton, senior corporate FX dealer at Convera, "The Australian dollar has benefited from a re-evaluation of the RBA's monetary policy path, but geopolitical risks remain."

Luci Ellis, Chief Economist at Westpac, added, "Given the slower progress on disinflation this quarter and the lower starting point for labor market slack, we now expect the first rate cut to occur after the November meeting" 

Looking ahead, AUD/USD traders will closely monitor the Core PCE Price Index release on Friday, a key gauge of inflation for US Federal Reserve policy decisions. While most traders anticipate the Fed to begin cutting interest rates in September, this data release could influence market speculation. Currencies with expectations of earlier rate cuts are theoretically at risk of weakening.