Australian inflation up as per forecasts

Australia’s consumer price index rose as expected to 5.2 percent in the 12 months to August, up from the July figure of 4.9%. This had been widely forecast by the markets. The rise appears to have been driven by higher fuel prices and an increase in property prices. Whatever the reasoning, still means inflation is 2 1/2 times higher than the Reserve Bank of Australia’s central target rate of 2.0%. Hence, the market expectation that we are likely to see extended tight monetary policy from the RBA but, so widely expected was this data that the Australian dollar, which has been strengthening for the last month, gave up some of those gains overnight. The GBP/AUD rate is up by 3/4 of a cent this morning to AUD 1.9050. We don’t have any UK data today but we will see Australian retail sales data overnight tonight and that is forecast to deliver a healthy 0.5% rise in August after a 0.8% contraction in July. That could well reverse this morning’s bounce but we will see UK GDP data on Friday, which is also expected to be positive.

GBPUSD finds a few buyers ahead of durable goods data

The GBP/USD rate has been declining since the beginning of the month and is five cents lower than it was on the 31st of August. However, we are seeing concerning signs in US data, suggesting the Federal Reserve may be keeping the money supply tighter for longer than it needs to. This afternoon’s US durable goods orders data is forecast to be negative and we have seen a smattering of US dollar selling an early trade. On its own, the durable goods data is unlikely to be enough to reverse this bout of US dollar strength and the markets are forecasting a rise in economic growth within the data that will be released tomorrow. The forecasts are for 2.2% quarterly growth in gross domestic product, up from 2.0% in the previous quarter but the worrying sign is in the price index element of that data. We saw a 4.1% price rise in the Q1 data. The markets are expecting that to drop to a much lower 2.0% in Q2. That would undoubtedly cause the Fed to second guess any thoughts of higher interest rates and ought to weaken the US dollar.