AUD: RBA Tightening Risks Rise – TD Securities

TD Securities analyst Prashant Newnaha said Australia's July consumer price index delivered strong inflation signals, with both headline and trimmed mean indicators beating market expectations and remaining at uncomfortably high levels, implying rising risks of RBA policy tightening.

**Sticky Inflation Intensifies Policy Shift Pressure**

July CPI data showed Australia's inflation pressures are not easing as quickly as expected, especially with the trimmed mean excluding volatile items still at elevated levels, indicating broad-based price pressures. TD Securities believes this data combination may force the RBA to reassess its current "pause and observe" policy stance, with market pricing for further rate hikes likely to heat up.

**AUD Faces Two-Way Pull**

Despite the inflation data being positive for the Australian dollar, TD Securities had previously assessed that AUD/USD faces a risk of falling below 0.6600, reflecting its cautious view on global risk appetite and commodity demand. At press time, AUD/USD was trading at 0.71819, with short-term direction still depending on how the market digests changes in RBA policy expectations.

**Policy Path Remains Uncertain**

TD Securities also noted that the RBA remains in a "pause and observe" phase, with the current policy rate already viewed as restrictive and economic momentum slowing. This means that even with strong inflation data, whether the central bank will immediately shift to rate hikes still depends on the evolution of employment, consumption, and core inflation, leaving the policy path highly uncertain.