Australia FX Today: The Aussie hangs on to the Consumer Price Index

The Australian Dollar (AUD) is moving cautiously on Tuesday, as markets await the release of the monthly Consumer Price Index (CPI) for August, scheduled on Wednesday at 01:30 GMT.

In the run-up to this major event, AUD/USD is stabilizing around 0.6600 after last week's correction from near 0.6700, amid growing monetary policy uncertainty.

Traders are watching closely for signs of underlying inflationary pressure, beyond the base effects of electricity subsidies. A bullish CPI surprise could revive expectations of a prolonged status quo from the Reserve Bank of Australia (RBA), or even a return of upward risk to interest rates.

Wider-than-expected inflationary pressures

The consensus forecast is for annual inflation to rise to 2.9% in August, following a jump to 2.8% in July. A higher figure could put pressure on the RBA, while hopes of a rate cut in November are still firmly anchored.

The July figure had already taken the markets by surprise. Annual inflation jumped to 2.8%, from 1.9% in June, driven by a 13.1% surge in electricity prices, linked to the partial end of state subsidies.

But that's not all. According to Michelle Marquardt, Head of Price Statistics at the Australian Bureau of Statistics (ABS), "underlying inflation also rose notably", with a trimmed mean at 2.7%, and a measure excluding volatile items at 3.2%, well above the mid-point of the RBA's target of 2% to 3%.

"Such an increase cannot be ignored," warns Justin Smirk, economist at Westpac. In his view, even though electricity weighed heavily, all components show a resumption of price pressures, which "constitutes a significant acceleration in underlying inflation".

A mixed reading for economists

From the Commonwealth Bank of Australia, Harry Ottley remains more measured: "Monthly CPI is by nature volatile, and the RBA prefers a broader reading on a quarterly basis". Nevertheless, Ottley expects the central bank to adopt a cautious tone in September, remaining in data-dependent mode.

The same is true of ANZ, where Adelaide Timbrell points out that the components behind July's rebound - energy, travel, and fresh produce - are often subject to seasonal fluctuations.

Timbrell notes, however, that household price sensitivity remains a central theme in the RBA's discussions, which could reinforce its reluctance to ease policy prematurely.

For Taylor Nugent, economist at NAB, "the July figure, while spectacular, does not necessarily reflect the true underlying dynamics of inflation". Nugent points out that the quarterly measure of trimmed mean remains the benchmark tool for assessing lasting trends, and that monthly data, while useful, should be interpreted with caution.

Wednesday's release will also be closely watched, as it comes just before a structural turning point. From November 2025, Australia will officially adopt monthly CPI as its main inflation measure, replacing the traditional quarterly indicator. This change of method could also make the RBA's reactions more reactive in the short term.

Caution ahead of CPI release

Australia is entering a zone of monetary uncertainty. If August's CPI confirms hot underlying inflation, the RBA's pause, widely expected for September, could be extended, and the assumption of a stable policy rate until 2026 could gain credibility. On the other hand, a sharp slowdown in consumer prices would provide a window for a rate cut in November.

In any case, the AUD could experience considerable volatility in the hours following publication, with heightened sensitivity to the details of the report, notably on price trends excluding electricity and volatile components.

Technical analysis of AUD/USD: Is the Aussie starting a broad rebound?

AUD/USD 1-hour chart. Source: FXStreet.

After a steady decline from the 0.6690 area, AUD/USD seems to be finding support around 0.6580.

After a period of horizontal consolidation below the 0.6603 resistance level, the Aussie broke this level on Tuesday. However, the movement still seems very fragile, with the currency pair oscillating just above it since then, without any significant recovery.

Caution is therefore still the order of the day, particularly in the run-up to a publication that is eagerly awaited by the markets, but a bullish confirmation of AUD/USD after the CPI release on Wednesday could offer a bullish signal following the formation of a round bottom.

A breach of the 100-hour Simple Moving Average (SMA), currently at 0.6614, would reinforce the short-term bullish bias.

In this scenario, AUD/USD could then aim for a return to the September 16 peak at 0.6688, before the September 17 post-Fed peak at 0.6707.

On the downside, a return below the 0.6600 level could delay the rebound scenario, potentially encouraging a resumption of the decline towards the recent lows around 0.6580.