Soft Inflation Firms Up RBA Cut

AUD

Softer Aussie inflation sees the AUD open lower against all majors bar the Euro, with markets shifting from the Euro to USD after a hawkish interest rate hold from the US Federal Reserve this morning. Asian equities ended down on the day, with the Hang Seng dropping 1.4%, while the Nikkei and Shenzhen closed flat. Locally, the ASX climbed 0.6%, led by the consumer staples and real estate sectors, which rose 1.3% and 1.2% respectively. Commodities were mostly down with Copper down virtually 20% (Trump indicated the most common form of copper imports will be excluded from tariff plans) and oil and natural gas up by over 1%. Australia's inflation rate significantly slowed to 2.1% year-over-year in the second quarter, marking the lowest since March 2021 and falling below expectations, nearing the bottom of the RBA’s 2% - 3% target band. Quarter-over-quarter inflation also dropped to 0.7%. Despite price rises in housing, food, and health, a fall in transport costs helped offset these increases. The RBA anticipates a temporary pick-up in inflation later this year and into early 2026 as current cost-of-living relief unwinds. The RBA has already cut rates twice this year but unexpectedly kept the policy rate steady at 3.85% in its last meeting to confirm inflation would fall within target. However, stronger-than-forecast indicators for monthly inflation, private demand, and a tighter labor market were noted. Economists now largely expect another 25-basis point rate cut in August due to the weaker inflation figures, rising unemployment, and a disappointing economic recovery shown by lower-than-expected GDP growth. Analysts suggest that the latest inflation data "rubber stamps" an August rate cut and indicates a positive trend for managing inflation risks, with some forecasting further cuts into 2026. Today we have Retail Sales m/m out at 11:30 AM.
 

USD

The AUD/USD opens down by over 1% at 5-week lows of 0.6443 after a steadfast Fed Chair Jerome Powell held U.S. rates steady overnight and signaled no intention to cut rates in September. Powell was relatively hawkish in his press conference, highlighting that inflation could be more persistent and noting that no decisions had been made about September, despite speculation. This hawkish rhetoric weighed on Wall Street, seeing the Dow Jones close down 0.4%, the S&P 500 down 0.2%, and the Nasdaq up 0.1%. Donald Trump announced that, starting August 1, India's exports to the US will face a 25% tariff, plus an additional penalty for its trade relations with Russia. He also signed orders imposing 50% tariffs on copper products and imports from Brazil. Ultimately flaring up risk sentiment and bringing investors back to the safe haven of the USD. The DXY (USD strength index) is up almost a percent since yesterday. Looking forward, we have Unemployment Claims, which are expected to remain somewhat unchanged at 220k, as well as the Core PCE Price Index m/m, which is expected to slightly increase from 0.2% to 0.3%.
 

EUR

The AUD/EUR opens flat at 0.5641 with both currencies weakening over the past 24 hours (AUD due to softer domestic inflation, EUR due to markets selling off in favour of the USD after the hawkish Fed interest rate hold). The EUR has also been leaking investment since the possibility of US tariff impacts began to become a reality. Yesterday, German Prelim GDP q/q printed in line with forecasts at -0.1%. These GDP figures indicate that the recent optimistic outlook for the German economy hasn't translated into actual growth. After a boost in the first quarter due to US importers accelerating their purchases of German goods to get ahead of anticipated tariffs (known as "frontloading"), the second quarter saw a reversal of this effect. This means that the full impact of the US tariffs, which were officially implemented in the second quarter, is now being felt, causing a downturn in the German economy. A mixed, yet subdued, start for European equities saw the DAX +0.2% and CAC +0.1%. Today we have German Preli CPI m/m, which is expected to increase 0.2% from 0.0% previously.
 

GBP

The AUD/GBP opens down slightly at 0.4862, and the FTSE remains unchanged. There has been no real data out recently. We do have some lower-tier data out tomorrow: Nationwide HPI m/m, where it's expected to increase from -0.8% to 0.5%, and Final Manufacturing PMI, which is expected to remain unchanged. Although the main piece of news to look out for would be next Thursday, when they have the Bank of England Rate decision.
 

NZD

The AUD/NZD opens slightly down from yesterday at 1.0912. Yesterday, ANZ Business Confidence came out better than previously, printing at 47.8. They have no data out today, although they have Building Consents m/m out tomorrow morning.