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Australian Dollar Looks To RBA As TD Inflation Stays Docile

Australian Dollar Looks To RBA As TD Inflation Stays Docile

David Cottle, Analyst

Australian Dollar Talking Points:

  • Australian inflation remains subdued according to a private sector gauge
  • Rates are stuck at record lows and not predicted to rise this year or next
  • AUD/USD seems set to continue its already entrenched decline

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The Australian Dollar has lacked interest rate support compared to its big US brother for all of 2018, and that trend looks set to continue judging by another docile inflation print on Monday.

The Melbourne Institute’s monthly gauge showed a 0.3% rise on the month in September, for a 2.1% annualized gain. Admittedly that monthly rise was stronger than Augusts 0.1% uptick, but the yearly figure was unchanged. Moreover the ‘trimmed mean’ measure showed inflation up just 1.8% on the year.

The Reserve Bank of Australia will give its October interest rate decision on Tuesday. It is expected to keep the Official Cash Rate at its now-venerable 1.50% record low once again.

The Australian economy is not doing at all badly on many counts, notably overall growth and job creation. However, inflation remains stickily low, only having crept back into the RBA’s target band in this year’s second quarter -for the first time in over a year. Official inflation is running at 2.1%, the same rate as the Melbourne Institute’s current measure.

There clearly wasn’t much for Aussie traders here, as the picture of pricing torpor is hardly new.

Australian Dollar Looks To RBA As TD Inflation Stays Docile

The central bank is also concerned about Australia’s high consumer debt and the ongoing trade spat between China and the US. Australian rate futures markets do not price in any change to the OCR either this year or next.

AUD/USD remains well within this year’s characteristic downtrend on its daily chart, indeed that channel has just survived yet another failed upside test.

Australian Dollar Looks To RBA As TD Inflation Stays Docile

With Australian rates apparently on indefinite hold and US rates set only to rise further, the Aussie seems set only to remain short of fundamental support.

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--- Written by David Cottle, DailyFX Research

Follow David on Twitter@DavidCottleFX or use the Comments section below to get in touch!

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.