AUD/USD leads major currencies after CPI data

AUD/USD has seen three up-days in a row on Wednesday (so far), and it is the strongest performing G10 currency over a five-day view. 

Due to persistent inflation, of which Wednesday’s CPI data is further evidence, the RBA is seen as the last major G10 central bank to cut interest rates, according to Rabobank. This in turn is likely to provide a backwind for the Aussie Dollar. 

“Ahead of this morning’s release of Australian Q1 CPI inflation data, the market was already of the view that the RBA would be one of the last G10 central banks to cut rates this cycle. Today’s stronger than expected readings reinforces this risk and highlights Rabobank’s house view that the RBA’s forthcoming easing cycle is likely to be extremely shallow,” Rabobank said in a note on Wednesday. 

The higher-than-expected inflation rate in Q1 is likely to force the RBA to revise up its inflation forecasts at the May meeting. Taken together with the weak US PMI data on Tuesday, which dented the myth of US economic exceptionalism, Rabobank are of the view that AUD/USD will continue higher. 

“This week’s US and Australia data releases have reinforced our view that AUD/USD is likely to trend higher later in the year and into 2025.”

The RBA is now unlikely to make its first rate cut until November, says the bank. 

“Market implied policy rates are currently pointing to a very small increase in the cash rate on a 6-month view, which reflects the rise in skepticism about the ability of the RBA to cut rates at all this year. Rabobank’s view is that the RBA will cut rates only twice in the forthcoming cycle starting in November,” Rabobank said.