Australian inflation expected within RBA's target goal
- The Australian monthly Consumer Price Index is foreseen stable at 2.1%.
- Quarterly CPI inflation is expected to have modestly decreased in Q2.
- The Reserve Bank of Australia kept the OCR at 3.85% at its May meeting.
- The Australian Dollar is set to post lower lows vs its American rival.
Australia will release inflation updates on Wednesday, two weeks ahead of the Reserve Bank of Australia (RBA) monetary policy meeting, scheduled for August 11-12. The Australian Bureau of Statistics (ABS) will publish two different inflation gauges: the quarterly Consumer Price Index (CPI) for the second quarter of 2025 and the June Monthly CPI, which measures annual price pressures over the past 12 months. The quarterly report includes the RBA Trimmed Mean CPI, policymakers’ favorite inflation gauge.
The RBA’s Official Cash Rate (OCR) stands at 3.85% after policymakers delivered two 25-basis-point (bps) rate cuts throughout the first half of the year.
Ahead of the announcement, the Australian Dollar (AUD) trades at around the 0.6500 mark against its American rival.
What to expect from Australia’s inflation rate numbers?
The ABS is expected to report that the monthly CPI rose by 2.1% in the year to June, matching the May reading. The quarterly CPI is foreseen to increase by 0.8% quarter-on-quarter (QoQ) and by 2.2% year-on-year (YoY) in the second quarter of 2025. Additionally, the central bank’s preferred gauge, the RBA Trimmed Mean CPI, is expected to rise by 2.7% YoY in the same quarter, easing from the 2.9% advance posted in Q1.
Finally, the RBA Trimmed Mean CPI is forecast to increase by 0.7% QoQ, matching its previous quarterly reading. As it happened in Q1, the figures will fall within the RBA’s goal to keep inflation between 2 and 3%, which means the central bank could deliver additional interest rate cuts in the foreseeable future.
The RBA’s statement on monetary policy released after the July meeting shows officials remained concerned about the global trade conflict launched by the United States (US). While they consider the worst of it will likely be avoided, it is still a source of uncertainty.
Additionally, most officials “believed that lowering the cash rate a third time within the space of four meetings would be unlikely to be consistent with the strategy of easing monetary policy in a cautious and gradual manner to achieve the Board’s inflation and full employment objectives. While the flow of recent data had been broadly in line with earlier forecasts, they judged that some data had been slightly stronger than expected.”
However, “A minority of members judged that there was a case to lower the cash rate target at this meeting. These members placed more weight on downside risks to the economic outlook – stemming from a likely slowing in growth abroad and from the subdued pace of GDP growth in Australia.”
Such concerns are real, considering the ABS reported that the Australian economy expanded by 0.2% in the three months to March 2025, down from the 0.6% posted in the final quarter of 2024 and missing the expected 0.4%. On a positive note, annualised growth held at 1.3%, although missing estimates of a 1.5% gain.
At the same time, labor costs are a source of concern. According to the latest information available, wage inflation rose by 3.4% in the year to March, and by 0.9% in the first quarter of the year.
Tepid growth combined with upside risks to inflation amid labor costs growing at a faster rate than the RBA’s inflation target leaves policymakers between a rock and a hard place. While further interest rate cuts before year-end remain on the table, the most likely scenario will be another on-hold decision in August.
Meanwhile, concerns about the impact of US President Donald Trump's trade war continue to ease. The US announced deals with Japan and the European Union in the last few days, while progressing in talks with China. As a result, the US Dollar (USD) surged across the FX board, leading to the AUD/USD pair falling to 0.6500, its lowest in two weeks.
How could the Consumer Price Index report affect AUD/USD?
The anticipated inflation readings would have no actual impact on the upcoming RBA decision, while easing price pressures should support officials’ wait-and-see stance. However, higher-than-anticipated inflationary pressures could prompt policymakers to make an earlier interest rate cut.
As previously said, the AUD/USD pair struggles at around 0.6500 ahead of the announcement, under pressure amid broad USD strength coming from trade-deal announcements.
Valeria Bednarik, FXStreet Chief Analyst, says: “The AUD/USD pair keeps posting lower lows and lower highs on a daily basis, in line with a continued decline. Speculation that the RBA may go for additional interest rate cuts should weigh on the Aussie, and push the pair towards the 0.6450 region, where it bottomed in July. Additional downward strength could result in AUD/USD falling towards the 0.6390 price zone.”
Bednarik adds: “The AUD/USD pair could surge should inflation results in line or lower than anticipated, yet with persistent USD demand, the uptick could be short-lived. The daily 20 Simple Moving Average (SMA) provides dynamic resistance at around 0.6545, while further gains expose the July peak at 0.6625.”
Economic Indicator
Monthly Consumer Price Index (YoY)
The Monthly Consumer Price Index (CPI), released by the Australian Bureau of Statistics on a monthly basis, measures the changes in the price of a fixed basket of goods and services acquired by household consumers. The indicator was developed to provide inflation data at a higher frequency than the quarterly CPI. The YoY reading compares prices in the reference month to the same month a year earlier. A high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.
Read more.Next release: Wed Jul 30, 2025 01:30
Frequency: Monthly
Consensus: 2.1%
Previous: 2.1%
Source: Australian Bureau of Statistics
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.