• The Australian Dollar receives support from the hawkish mood surrounding the RBA.
• China’s Consumer Price Index rose by 0.6% YoY in August, up from 0.5% in July but below the market consensus of 0.7%.
• The US Dollar receives support due to rising uncertainty over the likelihood of an aggressive Fed rate cut in September.

The Australian Dollar (AUD) recovers its recent losses against the US Dollar (USD) due to the hawkish sentiment surrounding the Reserve Bank of Australia (RBA). The RBA Governor Michele Bullock stated last week that it is too early to consider rate cuts. The board does not anticipate being able to reduce rates in the near term.

The Australian Dollar remains resilient despite the softer inflation data from China released on Monday. China’s Consumer Price Index (CPI) rose by 0.6% year-on-year in August, up from 0.5% in July but below the market consensus of 0.7%. On a monthly basis, CPI inflation increased by 0.4% in August, down from 0.5% in July and worse than the 0.5% estimate. Given the close trade relationship between Australia and China, any changes in the Chinese economy could have a significant impact on Australian markets.

RBC Capital Markets now expects the Reserve Bank of Australia to implement a rate cut at its February 2025 meeting, earlier than its previous forecast of May 2025. Despite inflation in Australia remaining elevated above the RBA's target, slower economic growth is not considered a sufficient reason for a rate cut this year.