Volkmar Baur at Commerzbank notes the Australian Dollar (AUD) has traded largely sideways, with markets waiting for clarity on Middle East developments and upcoming Australian labor and inflation data ahead of the August 11 Reserve Bank of Australia (RBA) meeting. Secondary indicators show improving sentiment but still low levels, and leading inflation gauges point to easing price pressures, supporting expectations that the RBA will leave rates unchanged.

Secondary data signal easing inflation

"The Australian dollar has been trading largely sideways in recent weeks and thus remains in a wait-and-see mode. The Reserve Bank of Australia’s next meeting isn’t until August 11, and the market appears to be waiting to see, on the one hand, how the situation in the Middle East unfolds, and on the other hand, how the inflation picture in Australia develops."

"However, a look at the secondary data already paints a fairly clear picture for us. While sentiment indicators released today point to an improvement, they are still at a low level in absolute terms. At the same time, leading indicators for inflation rates point to a significant easing."

"The subcategory tracking expected retail price trends even shows a negative value for the first time since 2020. And the question of capacity utilization also suggests that inflation should return to the 2% range."

"For the moment, however, the market’s caution is understandable. It remains unclear whether and to what extent the situation in the Middle East will escalate again, and, as mentioned, important data from Australia is also due before the next RBA meeting."

"To us, however, it looks very much as though the benchmark interest rate will remain unchanged in August."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)