AUS Q2 CPI reaction - The RBA to fall in line with other G10 central banks

It was billed as a make-or-break data release for the RBA’s hiking argument, but the Q2 trimmed mean CPI print came in at 0.8% q/q / 3.9% y/y, broadly in line with RBAs own estimate portrayed in the May SoMP and certainly isn’t as bad as some had feared.

If the RBA needed a smoking gun to tip the balance towards hikes next week, then this quarterly CPI print, while it certainly won’t please the RBA, isn’t sufficient to convince them to hike by 25bp next week - in what would have been one of the most reluctant rates hikes from a central bank in recent memory.



The Aussie interest swaps markets were pricing 8bp of hikes (or a 32% probability of a 25bp hike) for next week's RBA meeting, and after today’s Q2 CPI print, talk of hikes has fully come out of market pricing – in fact, there is a small (5%) probability priced of a cut next week; How fickle these interest rate traders are. What was April 2025 which was seen to be the start date for an RBA easing cycle, is now a November or December 2024 debate. Where we can see that ‘the market’ has radically shifted it start point, with a 25% chance of a 25bp cut implied for November.


We can see the relief front and centre, not just in Aussie rates/swaps pricing, but Aus 3yr govt bonds have found strong buying activity with yield collapsing by 22bp on the day. The AUD has followed in sympathy, with AUDUSD falling from 0.6532 to a low of 0.6483, and AUDNZD – the macro funds go to relative rates expression – falling from 1.1060 to 1.0968. We’ve seen relief resonate through the local equity market with the ASX200 rising from 8000 to 8057, with interest-sensitive names finding buyers readily available.

While we await changes to house calls from the more dynamic economists and towards market pricing. However, for now, talk for hikes has been removed from market pricing, and the RBA can essentially fall in line with other G10 central banks, although the pull towards the RBA’s inflation target is still incredibly frustrating and glacial.

Let’s see how UK/European traders trade this move, but for now we cast our eyes towards the BoJ and whether they hike by 15bp, as this is what seems to be the local speculation.

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