Anna 
The Australian dollar (AUD) witnessed a notable rally on Wednesday, spurred by the release of inflation data that surpassed expectations. Core measures of inflation remained above 4%, while the year-on-year headline rate moderated to 3.6%. Notably, the first quarter’s Consumer Price Index (CPI) revealed a March reading of 3.5%, surpassing the consensus estimate of 3.4%.
In response to the CPI announcement, Australia’s two-year swap rate surged by approximately 15 basis points, hitting its highest level since November 2023 at 4.51%. Consequently, market sentiment towards monetary policy shifted, with the Overnight Index Swap (OIS) curve indicating a reduced likelihood of an interest rate cut by year-end, projecting only 8 basis points of easing for the December meeting.
Commenting on the data, ING analyst Francesco Pesole noted in a Wednesday report that while the possibility of another rate hike cannot be entirely ruled out, the inflation figures alone may not warrant such a policy reversal.
We believe that the Reserve Bank of Australia can attain its inflation target without resorting to rate hikes. However, it may need to navigate through further bumps in inflation, which implies that any further dovish adjustments in communication will be approached with caution,” Pesole remarked.
The recent string of positive economic indicators has bolstered the Australian dollar, propelling it beyond the 0.6500 threshold. Despite the currency’s sensitivity to fluctuations in market sentiment, the revised expectations of policy easing and its ability to sustain support in a stable risk environment have reinforced the AUD’s position.
