Australia’s latest inflation report and household spending data have intensified market expectations for further Reserve Bank of Australia tightening, driving the Australian dollar higher against its major peers.
The Australian Bureau of Statistics reported that headline inflation rose 1.0% month-on-month in July, leaving the annual rate at 3.5%, above the 3.3% forecast. The RBA’s preferred underlying measure, trimmed mean inflation, climbed 0.5% over the month, holding steady at an annual 3.6%—more than a full percentage point above the central bank’s 2.5% target. Traders responded by sharply increasing wagers on an RBA rate hike, with a November move now seen as nearly certain and a September hike approaching a 50-50 probability.
Household spending data released on Thursday underscored the inflationary pressures, with nominal expenditure rising 1.1% month-on-month versus a 0.4% consensus. Annual spending growth accelerated to 7.0%, the fastest pace since June 2023. Discretionary spending growth has surged to a six-month annualised pace of over 10%, levels last observed during the 2022 COVID reopening period.
The repricing at the front end of the Australian rates curve has provided a tailwind for the Aussie dollar, particularly against European and British currencies, where moves reflect interest rate differentials more cleanly than broader risk sentiment.
Technical indicators have reinforced the bearish momentum in key crosses. EUR/AUD broke below support at 1.6260, retested the level, and then extended losses in early Asian trade. The pair is now testing the 1.6200 area, a level that previously acted as support in May and June. A sustained break beneath 1.6200 would expose the double bottom from earlier this year at 1.6130. The analysis suggests a retest and rejection of 1.6260 before entering short positions, with a stop above the level and an initial target at 1.6200.
GBP/AUD followed a similar pattern, breaking through the 100-day moving average and support at 1.9004, before extending to 1.8950. The pair is now eyeing the mid-June swing low at 1.8808, with 1.8696 as a secondary target. Short setups are supported by oscillators showing lower highs and a bearish MACD crossover, though a reversal back above 1.8950 would invalidate the bearish outlook.
In contrast, AUD/NZD broke above the upper boundary of a falling wedge pattern that had persisted since mid-June. The pair is now trading above the 50-day simple moving average, with longs considered on a hold above either the moving average or the wedge’s upper boundary. Initial targets include 1.2100, followed by the 100-day moving average and resistance at 1.2115. A sustained break above this zone could signal a retest of the year-to-date highs near 1.2280.
