Australia CPI expected to show inflation eased further in Q1, backing case for more rate cuts

• The Australian monthly Consumer Price Index is foreseen at 2.3% in March.
• Quarterly CPI inflation expected to ease further below 3%, with core figures meeting RBA's goal.
• The Reserve Bank of Australia will meet in mid-May to decide on monetary policy.
• The Australian Dollar eases vs its American rival after reaching a fresh 2025 high.

Australia will release multiple inflation figures on Wednesday and financial markets anticipate price pressures easing further at the beginning of 2025, paving the way for additional Reserve Bank of Australia (RBA) interest rate cuts. The central bank is meant to meet to decide on monetary policy on May 19-20.

Back to data, the Australian Bureau of Statistics (ABS) will publish two different inflation gauges: the quarterly Consumer Price Index (CPI) for the first quarter of 2025 and the March monthly CPI, which measures annual price pressures over the past twelve months. The quarterly report includes the RBA Trimmed Mean CPI, policymakers' favorite inflation gauge.

The RBA has maintained the Official Cash Rate (OCR) on hold at 4.10% when it met early April, after delivering a 25 basis points (bps) rate cut in February, the first one after the hiking cycle that began in 2022.

What to expect from Australia's inflation rate numbers?

The ABS is expected to report that the monthly CPI rose by 2.3% in the year to March, easing from the 2.4% posted in February. The quarterly CPI is foreseen to increase by 0.8% quarter-on-quarter (QoQ) and by 2.2% year-on-year (YoY) in the first quarter of 2025. Additionally, the central bank's preferred gauge, the RBA Trimmed Mean CPI, is expected to rise by 2.9% YoY in Q4, easing from the 3.2% advance posted in the previous quarter.

Finally, the RBA Trimmed Mean CPI is forecast to increase by 0.7% QoQ, higher than the 0.5% previously posted. Still, the figures will fall within the RBA's goal to keep inflation between 2 and 3%, which means the central bank could deliver additional interest rate cuts in the foreseeable future.

Meanwhile, economic activity in the country, as measured by the Gross Domestic Product (GDP), picked up modestly in the last quarter of 2025, with GDP growing by 0.6% in real terms, surpassing the market expectations of 0.5% and marking the strongest performance since December 2022. The annual growth rate of 1.3% also exceeded the consensus forecast of 1.2%. The modest advance spooked the ghost of recession, albeit the economy is not yet out of the woods.

Finally, it's worth adding that Australia's GDP growth is projected to reach approximately 2.2% in 2025, according to the most recent forecasts from the RBA. Beyond the central banks' inflation goal, tepid growth has been part of policymakers' decision to trim interest rates, to help avoid a steeper economic setback.

Meanwhile, the United States (US) President Donald Trump started a global trade war. After announcing tariffs on neighbouring countries, Trump launched "reciprocal tariffs" on most trading partners. Australia fell into the 10% baseline levy while facing a 25% tariff on all steel and aluminium exports into the US. However, most tensions lay between China and the US, with tariffs in the hundreds. China is Australia's major trading partner, and the local economy may suffer the echoes of tensions between the world's largest economies.

Additionally, concerns related to the trade war's impact on the US economy keep the US Dollar (USD) on the back foot. The USD fell to fresh 2025 lows against most major rivals in April and retains its soft tone regardless of the market's sentiment.

RBA Governor Michelle Bullock noted, "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, as usual, crucial. Easing inflationary pressures should fuel bets on an RBA rate cut in May.

Generally speaking, higher CPI figures would be bullish for the AUD amid expectations of a hawkish RBA. However, the opposite scenario is also valid: easing inflation could push policymakers towards a more dovish stance.

Heading into the CPI release, the AUD/USD pair trades around the 0.6400 mark, retreating from a fresh yearly high of 0.6450.

Valeria Bednarik, FXStreet Chief Analyst, says: "The AUD/USD pair is consolidating gains and despite intraday back and forth, the bullish case remains firm in place. Technical readings in the daily chart suggest the pair may correct lower, as technical indicators ease from their recent peaks near overbought readings. Still, the case for a bearish breakout remains far away."

Bednarik adds: "The AUD/USD pair should find initial near-term support in the 0.6340 region, with further slides exposing the 0.6280 price zone, where a bullish 20 Simple Moving Average (SMA) converges with a flat 100 SMA. It would take a break below this area to anticipate a steeper slide towards the 0.6200 mark. A bullish extension beyond the year high should result in AUD/USD testing sellers' determination around the 0.6500 figure."