The Australian dollar fell against the US dollar after the country’s statistics office released the Consumer Price Index (CPI) data for the second quarter. The data showed that the CPI rose by 0.4% in the quarter. This was lower than the expected 0.5%. It was however the same as the quarterly CPI numbers for the first quarter.
On an annual basis, the CPI rose by 2.1%, which was better than the first quarter’s CPI of 1.9%. Traders were however expecting the CPI to rise by 2.2%.
The main contributors to the CPI growth were alcohol and tobacco, clothing and footwear, health, and transport, which rose by 1.6%, 1.3%, 1.9%, and 1.6% respectively.
While the data was not as good as the market was expecting, it was closer to the target of the Reserve Bank of Australia (RBA). The bank has targeted the inflation to rise to 2.0%.
In recent weeks, the Australian data has been encouraging. The economy has continued to add jobs and the unemployment rate has remained stable at about 5.2%. In the past RBA meeting, the officials expressed optimism about the economy but remained concerned about trade and housing prices. On trade, most of Australia’s revenues come from exports. Therefore, if there is a problem on global trade, the economy will be affected. In fact, when the US announced steel and aluminium tariffs, Australia was the first country to protest.
Natural resources are very important to the Australian economy with resources like copper and coal forming an important part of the economy. The prices of these commodities has fallen as the cloud of trade remain.
On housing, the two biggest cities in the country have seen their prices drop. Sydney and Melbourne’s housing problem has persisted as the demand for houses has remained low while the supply is high.
As shown below, the AUD/USD pair has reached 0.7398, which is close to the lowest level since yesterday. In the past few weeks, the pair has traded in a sideways direction after seeing a major drop two weeks ago. This drop came after the RBA officials raised concerns about the issue of trade. Traders interpreted the statement as being dovish. With inflation easing, there is a likelihood that the pair will remain going lower in the foreseeable future.
Meanwhile, in the neighbouring New Zealand, the economic data was not pleasing. In June, the country’s exports dropped to N$4.9 billion. This was lower than the N$5.35 billion exports in May and the N$5.06 billion traders were expecting. Imports on the other hand rose to $5.02 billion, which was higher than the expected $4.92. This led to an increased trade deficit of $113 million. In response to the data, the NZD/USD pair dropped to an intraday low of 0.6785. It has since risen a bit and reached 0.6805.
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