Brown Brothers Harriman’s (BBH) Elias Haddad highlights that AUD/USD is trading near the lower end of its recent 0.6900–0.7200 range. February inflation was slightly softer than expected, but Haddad expects Australian price pressures to accelerate as higher energy costs feed through. With Q1 CPI due April 29, markets price a 65% chance of a 25 bps RBA hike to 4.35% on May 5.

Energy-driven CPI keeps RBA on alert

"AUD/USD is down near the lower-end of a two-month 0.6900-0.7200 range. Australia inflation was marginally lower than anticipated in February but is poised to quicken in the months ahead due to higher energy prices."

"In February, headline CPI dipped 0.1pts to 3.7% y/y (consensus 3.8%) while the trimmed mean CPI printed at 3.3% y/y (consensus: 3.4%) for a third consecutive month."

"The monthly CPI is Australia’s primary measure of inflation, but the RBA continues to focus on measures of underlying inflation from the quarterly CPI."

"Indeed, the RBA warned last week that “inflation is likely to remain above target for some time and that the risks have tilted further to the upside, including to inflation expectations.” The RBA also pointed out that “Developments in the Middle East remain highly uncertain, but under a wide range of possible scenarios could add to global and domestic inflation.”"

"Australia Q1 CPI data is due April 29, just ahead of the RBA May 5 policy rate decision where a 25bps hike to 4.35% is 65% priced-in."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)