Australian Dollar: RBA inflation focus underpins carry – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes AUD/USD is holding above 0.7200 as Australian sentiment softens but inflation keeps the Reserve Bank of Australia (RBA) on . He highlights that trimmed mean Consumer Price Index (CPI) and stronger GDP support a 25 bps hike to 4.60% later this month, though the RBA may wait until November. Haddad also emphasizes Australia’s attractive carry and strategic commodity exposure as key Australian Dollar (AUD) supports.

RBA risks and carry support Aussie

"AUD/USD is holding above support at 0.7200. Australia consumer and business sentiment weakened in September and August, respectively, but inflation remains the RBA’s chief concern."

"Assistant Governor (Economic) Sarah Hunter warned that “if there is a sense that inflation’s going to be stronger than we think in the context of our forecast, that the Board may well have to raise interest rates to tackle that.”"

"Australia trimmed mean CPI held at 3.6% y/y in July, above the RBA’s 3.3% year-end forecast. Meanwhile, real GDP growth reached 2.1% y/y in Q2, beating the RBA’s 1.9% forecast. The data supports the case for a 25bps hike to 4.60% on September 29 (70% priced-in). Still, the RBA could wait until November 3, allowing it to assess both the August and Q3 CPI prints on September 30 and October 28, respectively."

"More broadly, Australia’s attractive carry alongside the country’s strategic exposure to commodities linked to energy, AI, and defense remain key AUD tailwinds."