Australian Dollar: RBA tailwind seen fading – Commerzbank

Commerzbank’s Volkmar Baur argues that market expectations for 1.5 further Reserve Bank of Australia hikes look excessive after softer August CPI data. While inflation remains above target, he highlights lagged effects of past tightening and weakness in the real estate sector. Baur concludes the RBA is likely to wait, leaving the Australian Dollar unlikely to gain additional support.

Inflation data temper RBA expectations

"One day after the Reserve Bank of Australia’s monetary policy meeting, the CPI figures released today also show why 1.5 additional rate hikes by the RBA - as the market was still expecting yesterday - are likely to be too much."

"There’s no question that inflation is still too high, and it will take a while before it returns to the middle of the target range."

"However, interest rate hikes always take effect with a certain time lag, and particularly with regard to the real estate market - where building permits fell again in August by 6.1% compared to the previous month and prices in the largest cities continue to decline - the RBA would likely be well advised to wait and see how things develop in the coming months."

"As a result, the AUD is unlikely to receive any further tailwind."