AUD: CPI Keeps RBA's Hold Bias Intact – ING

ING analyst Francesco Pesole notes that Australia's July inflation data is expected to slow further, consistent with the bank's view that the Reserve Bank of Australia (RBA) will not hike rates again this year. Nevertheless, RBA Governor Bullock is likely to continue delivering hawkish signals, and even a modest upside surprise in inflation could provide a short-term boost to the Australian dollar.

**Inflation Slowdown and Policy Stance**

ING believes the easing trend in Australian inflation supports the RBA holding rates at 4.35%. According to a previous report by ING analyst Chris Turner, the RBA held rates steady at its latest meeting, with Bullock emphasizing upside risks to inflation in her remarks, conveying a hawkish tone. Rising oil prices and robust domestic demand keep inflation risks tilted to the upside, implying a high bar for the RBA to pivot toward easing in the near term.

**AUD Outlook**

ING remains bullish on AUD/USD's prospects, expecting it to break above the May high of the 0.7260-0.7270 range before year-end. Currently, AUD/USD trades near 0.71479, leaving some room to reach that target. If upcoming inflation data slows as expected while Bullock maintains hawkish rhetoric, the Australian dollar could gain fundamental support.

**Risk Factors**

Market reports indicate the RBA has held rates steady for a second consecutive meeting, aiming to observe further developments in the slowing labor market and the property sector. If inflation decelerates faster than expected, markets may increase bets on RBA rate cuts next year, capping the Australian dollar's upside; conversely, if inflation proves unexpectedly firm, the hawkish stance will gain more data support, potentially accelerating the AUD's move toward ING's target range.