Aussie inflation expectations jump, AUD higher

The Australian dollar has edged higher on Thursday.  In the North American session, AUD/USD is trading at 0.6292, up 0.22% on the day.

Consumer inflation expectations in Australia climbed sharply to 4.6% in February, compared to 4% a month earlier. This blew past the forecast of 3.8% and marked the highest reading since April 2024. Consumers aren’t optimistic about the inflation picture even though inflation eased to 2.4% y/y in Q4 of 2024, the lowest level since Q1 of 2021. The Westpac consumer sentiment index for February, released earlier this week, found that consumers remain pessimistic about economic conditions.

The Reserve Bank of Australia meets on Feb. 18 and is widely expected to lower rates by a quarter point, which would reduce the cash rate to 4.1%. The RBA has held rates since Nov. 2023 and has become an outlier amongst other major central banks, most of which are well into an easing cycle.

Fed Chair Jerome Powell testified before the House Financial Services Committee on Wednesday, shortly after the release of January’s hot inflation report. Headline and core CPI were both higher than expected, with headline inflation accelerating for a fourth straight month.

Powell told lawmakers that the Fed had made “great progress” on inflation but acknowledged there was more work to do. Powell said that the Fed doesn’t “get excited” about one or two good or bad readings but despite his assurances, there are growing concerns that inflation could be moving in the wrong direction, away from the Fed’s 2% target.

The Fed’s battle with inflation has also become more complicated with President Donald Trump’s plan to impose widespread tariffs. Tariffs will raise inflation but Powell has been sidestepped the issue, saying it’s not the Fed’s job to comment on trade policy.

• AUD/USD is putting pressure on resistance at 0.6315. Above, there is resistance at 0.6350
• There is support at 0.6275 and 0.6240