Aussie CPI Jumps Again

RBA easing expectations have been thrown into disarray today on the back of stronger-than-forecast Aussie CPI overnight. Annualised CPI for April came in at 3.6%, up from 3.5% prior and above the 3.4% the market was looking for. The data begs serious questions over the prospect of RBA easing this year and raises risks that the bank might even be forced to tighten further instead. Uncertainty was seen around the prior monthly reading, which marked a fresh uptick in inflation. However, with a second consecutive monthly increase in CPI now seen, the prospect of the RBA needing to take fresh tightening action is certainly becoming more visible.

Inflation Stickier Than Forecast

Prior to this recent period of inflation moving higher, the RBA had been leaning clearly towards easing rates this year. Speaking at the last RBA meeting, governor Bullock warned that inflation risks remained evenly balanced and needed to be monitored. The RBA head said that inflation was taking longer than expected to get back to target and while the bank didn’t necessarily need to hike again, Bullock warned that the bank stood ready to adjust policy as needed.

Touch Call for RBA

The issue for the RBA now is that with the labour market loosening and household consumption still a key drag on the economy, any further tightening could exacerbate underlying issues. However, the RBA said itself that it will ultimately be worse for the economy to end up with higher inflation rather than lower inflation meaning that, for now, hawkish risks are rising once again and should keep AUD supported near-term.

Technical Views

EURAUD

The pair is currently sitting on a band of support ahead of the 1.6169 level, around the middle of the broad bearish channel. With momentum studies turning lower, risks are skewed towards a break of support and a continuation down towards the 1.5891 level next and a fresh test of channel lows. 

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