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Australia’s June quarter core CPI rose by +0.46%/qtr (prior was +0.52% now +0.54%/q) and expanded at an annual pace of 1.87%/y (prior 2.01%/y), notes Annette Beacher, Chief Asia-Pacific Macro Strategist at TD Securities.

Key Quotes

“This outcome matched the median forecast of 1.9%/yr, and remains consistent with the RBA’s May projection of 2%/yr throughout 2018.”

“However, the markets ignored historical upgrades (again) and decided the result was disappointing at the margin.”

“The AUD wobbled then settled on $US0.7408 (was $US0.743, and today’s G10 underperformer) while the 3yr bond yield fell -3bps to 2.12% (was 2.15%).”

“We still hold a hawkish tilt: with core inflation and wages both being ‘off the floor’, lifting the cash rate ‘off the floor’ still makes sense.”

“We stick with the first RBA hike in May 2019, although OIS is only 27% priced for this view.”

“The AUD sagged on the lack of upside surprise, although at $US0.74 and 63.2 on a TWI basis these are not materially different to the assumptions the RBA used in May, hence we do not expect changes to growth or inflation in next month’s Statement on Monetary Policy (August 10).”