AUD/CAD edges down as slowing Australia inflation adds to RBA pause case

The Australian Dollar pared earlier losses against its Canadian counterpart on Wednesday, which came after data showed Australian inflation had slowed to a 17-month trough in July.

Australia’s annual CPI inflation stood at 4.9% in July, easing from 5.4% in June. A consensus of analyst estimates had pointed to a lesser drop – to 5.2%.

It has been the lowest annual inflation rate since February 2022, as housing costs and food & non-alcoholic beverage prices eased.

The core inflation gauge, which excludes volatile items and travel, also decelerated in July.

The inflation report added to the case for the Reserve Bank of Australia to leave interest rates on hold at its policy meeting next week. Futures data imply borrowing costs may remain steady for an extended period, with no chance of a rate cut until September 2024.

“The sharp fall in inflation confirms that the RBA is done tightening and raises the chances that the Bank will start to ease policy earlier than most anticipate,” Marcel Thieliant, head of Asia-Pacific economics at Capital Economics, was quoted as saying by Reuters.

“The risks are tilted towards rate cuts starting earlier than our current forecast of Q2 2024.”

Meanwhile, CAD traders now look to Canadian current account data for the second quarter due out on Thursday as well as to GDP growth figures for Q2, which will be released on Friday.

The Canadian economy probably expanded at an annualized rate of 1.2% in the second quarter, according to market consensus, following a 3.1% growth in Q1.

As of 7:26 GMT on Wednesday AUD/CAD was edging down 0.19% to trade at 0.8764. The currency pair was losing 0.31% at some point during the Asian session.

The minor Forex pair has rebounded 1.77% from the 42-week low of 0.8624, which it registered on August 17th.