Australian Dollar Gained as Additional Rate Cut Expectations Failed to Materialise

THE TAKEWAY: Australian consumer prices relatively flat, met expectations > Market expectations for further rate cuts likely lacked catalyst > Australian Dollar gained

The Australian Dollar gained versus the U.S. Dollar as Australian consumer prices increased at 0.5 percent in the second quarter, up from first quarter figures which increased at 0.1 percent. The yearly change in consumer prices for the second quarter increased at a slower rate to 1.2 percent from 1.6 percent. Both quarterly and yearly figures matched closely to projected estimates which factored in a marginal increase for quarter-over-quarter prices and a slight decrease for year-over-year prices.

The Australian Dollar may have rallied because prices roughly fell in line with expectations reinforcing that the fundamental outlook had not materially changed. Markets could have been looking for larger than expected price declines to fuel expectations for rate cuts which typically does not bode well for the high-yielding currency. However, since the worse than expected scenerio did not play out, traders probably decided to reduce short exposure after the Aussie currency was heavily sold over the last three days of trading.

AUD/USD, 5 Minute Chart