The Australian dollar strengthened against a range of major currencies during Asian trading on Wednesday, reaching a two-week high against the US dollar following the release of unexpectedly strong inflation data.
Inflation Surge
Consumer prices in Australia surged to their highest levels this year, intensifying inflationary pressures on the central bank and dashing hopes for interest rate cuts in the near future.
Market Performance
The AUD/USD pair climbed 0.5% to 0.6679, the highest point since June 12, after touching a session low of 0.6636. On Tuesday, the Aussie had declined by 0.15% against the US dollar, marking its third loss in four sessions amid risk aversion.
Leading the G8 Currencies
Today, the Australian dollar emerged as the best-performing currency among the G8, advancing 0.5% against the US dollar. It also gained 0.4% against both the euro and the British pound, and 0.55% against the Swiss franc. Additionally, the Aussie rose 0.6% against the yen, hitting a 17-year peak at 106.77, and increased 0.6% against the New Zealand dollar to reach a five-week high at 1.0918.
Inflation Data and Policy Implications
Government data revealed that Australian inflation surged to 4.0% in May, the fastest rate since December 2023 and higher than the expected 3.8%. The persistently high prices in the services sector are causing concern among policymakers and are likely to eliminate any prospects of interest rate cuts this year.
Central Bank’s Response
In response to the inflation data, the Reserve Bank of Australia (RBA) is now considering a potential interest rate hike to control inflationary pressures. RBA President Michelle Bullock indicated during the last policy meeting that a rate hike could be on the table if economic data continues to warrant such action.
