The Australia Monthly CPI came in higher, with some measures showing signs of cooling. However, this data alone isn't enough to prompt the RBA to consider a rate cut. Meanwhile, as geopolitical tensions ease, France continues to face pressure due to its weaker fundamentals.

AUD: Not so easy

The near-term outlook for the AUD remains supported by domestic factors, with the latest RBA meeting minutes indicating that the Board is likely to keep rates on hold for an extended period due to ongoing inflation uncertainty. The RBA stressed the importance of remaining vigilant against inflation risks, maintaining that policy must stay restrictive. Although the minutes suggest a hawkish tone, they also reveal the Board’s reluctance to hike rates, favouring a steady cash rate to gradually manage inflation, even if it takes longer to meet targets. However, external factors present challenges for the AUD. Iron ore prices have fallen below USD 100 per ton, and while investors are cautiously returning to carry trades, the RBA continues to resist market expectations of a 25bps rate cut by year-end.

Australia’s monthly inflation data surprised modestly to the upside. Headline inflation came out at 3.5% y/y, down from 3.8% y/y, but slightly a bit higher than the consensus forecast of 3.4% y/y. Although few measures are cooling, this data supports the RBA’s rhetoric that it is too early to discuss rate cuts and the central bank will likely wait on the Q3 inflation data in late October.

As a reminder, the most recent RBA Minutes from the August 5th-6th meeting noted that the Board considered a rate hike but ultimately decided that holding rates steady better balanced the risks. RBA Governor Michele Bullock reiterated a hawkish stance in the post-meeting press conference, stating that while a rate cut is not on the near-term agenda, the Board is ready to raise rates if necessary. She also emphasized that market pricing for rate cuts over the next six months does not align with the Board’s outlook.

CHF: Unchanged

From a broader perspective, Switzerland's fundamental outlook remains steady, with the market still expecting a potential rate cut from the SNB later this year. July inflation data came in at 1.3% y/y, which is in line with the SNB’s forecasts, suggesting that the central bank may maintain its current stance. During the June meeting, SNB President Thomas Jordan expressed concerns about a strong CHF, noting it could hurt domestic importers and exacerbate inflationary pressures. However, the recent strength of the CHF may be driven by market hedging as investors grow increasingly concerned about a potential US recession.

Goldman Sachs recently suggested that the SNB likely intervened last week to curb CHF strength, citing unusual price action, a rise in sight deposits, and the SNB’s historical patterns. Looking ahead, the CHF agenda is relatively light, with no significant events likely to drive the currency. Additionally, without further developments from geopolitical tensions, such as a response from Iran, the CHF’s recent strength could gradually fade.

AUD/CHF 4H Chart