Moderate AUD reaction as inflation eases but remains above target level – Commerzbank

The Australian inflation figures fell slightly more than expected. Economists at Commerzbank analyze AUD reaction.

Is the decline in inflation already enough?

Although inflation is largely declining, it is doing so from a very high level. At 6%, it remains well above Australia's target range of 2-3%. As a result, the ongoing discussions about a possible further interest rate hike are not entirely incomprehensible, especially in light of a labor market that remains extremely tight.

With inflation falling and the labor market strong, next week's meeting could decide whether the RBA is truly hawkish, i.e. whether it will raise rates again even if inflation falls but remains well above the target range. The surprises of the past few months make this seem not entirely unrealistic, which may explain the overall relatively moderate reaction of the Australian Dollar.