AUD Strengthens Ahead of CPI, Market Tests RBA Signals
The AUD/USD strengthened slightly to around 0.7065 in early European trading on Tuesday, making the Australian dollar one of the strongest among major currencies. This strengthening occurred ahead of the release of Australian January inflation (CPI) data on Wednesday—a key figure that could shift market expectations for Reserve Bank of Australia (RBA) policy.
Market focus is focused on inflation as the RBA still leaves room for a tighter stance. At its early February meeting, the central bank raised interest rates 25 basis points to 3.85% and reiterated that further hikes remain open, citing inflation risks as not yet fully subdued. RBA Governor Michele Bullock emphasized that price pressures remain “too strong” and the central bank does not want inflation to spiral out of control.
Consensus expects Australia's annual CPI to slow slightly to 3.7% from 3.8% in December, while the trimmed mean CPI is expected to hold steady at 3.3%. If inflation figures come in hotter than expected, the AUD will receive an additional boost as the market could re-increase the odds of RBA tightening—conversely, cooler inflation risks triggering profit-taking following the strong data ahead.
Meanwhile, the US dollar remains supported by broad gains, with the DXY (DXY) rising slightly to around 97.80. USD sentiment remains defensive amid US trade policy risks, after President Donald Trump again signaled that tariffs could be imposed on countries deemed to be "playing around" with existing trade agreements following the Supreme Court ruling—leaving the AUD's room to maneuver facing dollar-bound resistance. (alg)
Source: Newsmaker.id
