AUD: Good enough - Commerzbank

In the minutes of the last meeting of the Reserve Bank of Australia, the monetary policy committee highlighted two economic factors in particular that will influence the interest rate decision at the next meeting in August: the labour market and inflation. And with no new labour market report due before the next meeting on 12 August, this morning's slightly lower-than-expected inflation figures should be enough to pave the way for the RBA to cut interest rates, Commerzbank's FX analyst Volkmar Baur notes.

A cut should not represent any headwinds for the Aussie

"In the second quarter, the annual rate fell to 2.1%, which is at the lower end of the central bank's target range (2-3%). Core measures such as the trimmed mean and weighted mean, which are designed to exclude more volatile components, also continued to decline, although at 2.7% year-on-year they are still at a slightly higher level. The monthly data for June even show a decline in the overall rate to 1.9%, which indicates that the decline could continue a little further. This is particularly true when one considers that the annualized 3-month change has once again fallen significantly to 1.6%."

"Admittedly, not all that glitters is gold. Inflation in services is still too high, and when the quarterly rate for non-tradables is annualized, it is also still well above the central bank's target range. But I think these points are being taken sufficiently into account in the central bank's ongoing cautious approach. The market is already fully pricing in a cut in the cash rate in around two weeks. And after today's inflation figures, I don't believe the central bank will surprise us again. A cut should therefore not represent any headwinds for the Aussie."