Australia will release fresh inflation-related data on Wednesday, and financial markets anticipate price pressures eased further at the end of 2024, paving the way for a Reserve Bank of Australia (RBA) interest rate cut when it meets in February.
The Australian monthly Consumer Price Index is foreseen at 2.5% in December. Quarterly CPI inflation expected to ease further below 3%, with core figures nearing RBA ’s goal. The Reserve Bank of Australia will meet on February 18 to decide on monetary policy.
The Australian Dollar falls ahead of the announcement amid prevalent risk aversion. Australia will release fresh inflation-related data on Wednesday, and financial markets anticipate price pressures eased further at the end of 2024, paving the way for a Reserve Bank of Australia interest rate cut when it meets in February. The Australian Bureau of Statistics will publish two different inflation gauges: the quarterly Consumer Price Index for the fourth quarter of 2024 and the December monthly CPI, which measures annual price pressures over the past twelve months. The quarterly report includes the Trimmed Mean CPI, the RBA’s favorite inflation gauge. The RBA has maintained the Official Cash Rate steady at 4.35% since November 2023, claiming inflation needs to “sustainably” return to its target band of 2% - 3% before considering a rate cut. The latest Board meeting took place in December, and officials claimed they were “gaining confidence” that inflation was moving in the right direction. It is worth remembering, however, that the RBA has a dual mandate, as full employment is also part of it. Nevertheless, inflation figures will be crucial to determine whether an interest rate cut is finally reaching Australian shores. What to expect from Australia’s inflation rate numbers? The ABS is expected to report that the monthly CPI rose by 2.5% in the year to December, higher than the 2.3% posted in November. The quarterly CPI is foreseen to increase by 0.3% quarter-on-quarter and by 2.5% year-on-year in the final quarter of 2024. Additionally, the central bank’s preferred gauge, the RBA Trimmed Mean CPI, is expected to rise by 3.3% YoY in Q4, easing from the 3.5% advance posted in the previous quarter. Finally, the RBA Trimmed Mean CPI is forecast to increase by 0.6% QoQ, the lowest quarterly result since mid-2021. The anticipated figures will be below the central bank’s forecast, boosting the odds of an interest rate cut when the Board meets in February. But it is not just about inflation falling to target. Economic growth in the country has been tepid, to say the least. Australian Gross Domestic Product rose 0.3% in the third quarter of 2024 and by 0.8% since Q3 2023. Economic progress may not be part of the RBA’s mandate, but officials can not ignore the effects of monetary policy on economic growth. Meanwhile, Donald Trump has become the 47th president of the United States . The Republican leader has pledged to impose massive tariffs on imports, spurring concerns about global trade costs. Just recently, Treasury Secretary Scott Bessent pushed for new universal tariffs on US imports starting at 2.5% and rising gradually, the Financial Times reported on Monday. However, President Trump quickly responded by saying that he wanted much bigger uniform levies. Tariffs could affect global manufacturing costs and, hence, push inflation higher. With that in mind, central banks may refrain from trimming interest rates. However, Trump’s trade war against China may end up benefiting Australia. The US President may push tariffs into all major rivals, yet the higher levies will be on Chinese goods and services. With that in mind, RBA Governor Michelle Bullock recently noted that “If there are large tariffs on China, Chinese trade will probably try to find other ways to find an outlet. Australia might even be a beneficiary of that. So we might, in fact, find some deflationary impacts for Australia if it rolls out that way.” How could the Consumer Price Index report affect AUD/USD? Inflation figures are, then, crucial. Easing inflationary pressures coupled with Bullock’s recent comments will fuel bets on an RBA rate cut on February 18. Generally speaking, higher CPI figures will be bullish for the AUD amid expectations of a persistently hawkish RBA. However, the opposite scenario is also valid: easing inflation could push policymakers to shift towards a more dovish stance. Heading into the CPI release, the AUD/USD pair trades around 0.6250, down for a second consecutive day. Valeria Bednarik, FXStreet Chief Analyst, says: “The AUD/USD pair is gaining bearish traction ahead of Australian CPI figures amid a risk-averse environment. The USD is firmer as tariffs-related concerns dominate financial boards. Further slides are likely should inflation data result as expected or below expectations. On the contrary, higher-than-anticipated figures may trigger some near-term AUD/USD gains, yet if fears prevail, the advance will likely be short-lived.” Bednarik adds: “The AUD/USD pair could fall towards the 0.6200 region as an immediate reaction to the news, while a bearish breakout exposes 0.6164, the January 17 low. Should that level give up, the next bearish target is the January 13 low at 0.6130. Technical readings in the daily chart suggest a limited bullish potential. Still, a recovery beyond the 0.6300 threshold may result in the pair testing the 0.6330 price zone before fresh selling resurges.” Tariffs FAQs What are tariffs? Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas. What is the difference between taxes and tariffs? Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers. Are tariffs good or bad? There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs. What is US President Donald Trump’s tariff plan? During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes. Economic Indicator RBA Trimmed Mean CPI The Consumer Price Index , released by the Australian Bureau of Statistics on a quarterly basis, measures the changes in the price of a fixed basket of goods and services acquired by household consumers The YoY reading compares prices in the reference quarter to the same quarter a year earlier. The trimmed mean, which is a measure of underlying inflation, is calculated as the weighted average of the central 70% of the quarterly price change distribution of all CPI components in order to smooth the data from the more-volatile components.Generally, a high reading is seen as bullish for the Australian Dollar , while a low reading is seen as bearish. Read more. Next release: Wed Jan 29, 2025 00:30 Frequency: Quarterly Consensus: 3.3% Previous: 3.5% Source: Australian Bureau of Statistics Why it matters to traders? The quarterly Consumer Price Index published by the Australian Bureau of Statistics has a significant impact on the market and the AUD valuation. The gauge is closely watched by the Reserve Bank of Australia , in order to achieve its inflation mandate, which has major monetary policy implications. Rising consumer prices tend to be AUD bullish, as the RBA could hike interest rates to maintain its inflation target. The data is released nearly 25 days after the quarter ends.
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