Australia's February Consumer Price Index (CPI) cooled slightly, rising 3.7% year-over-year compared to 3.8% in January, with the monthly print coming in flat at 0.0%, which was softer than expected [1]. The trimmed mean inflation rose 0.2% month-over-month, missing the 0.3% forecast, while the annual pace held steady at 3.3% [1]. Housing was the largest annual contributor, up 7.2%, followed by Food and non-alcoholic beverages (+3.1%) and Recreation and culture (+4.1%) [1]. Electricity prices surged 37.0% over the year, primarily due to the expiry of government energy rebates, while automotive fuel fell 7.2% year-over-year, still reflecting pre-Middle East conflict pricing [1].
The CPI data was released before the onset of the U.S.-Iran conflict, which has triggered an energy shock and is expected to push headline inflation toward 5% in the coming months [1]. Services inflation held at 3.9%, goods eased to 3.5%, and non-tradables ticked up to 5.0% [1]. The Reserve Bank of Australia (RBA) recently delivered its second consecutive rate hike, raising the cash rate to 4.1%. Governor Michele Bullock warned that inflation remains too high and flagged concerns about second-round effects from rising energy costs [1].
Market reaction to the CPI print was initially bullish for the Australian dollar, which briefly ticked higher after the release. However, the AUD turned lower about 15 minutes later and remained on the back foot for roughly an hour and a half, eventually settling into a range before picking up some bids ahead of the London open [1]. Traders largely looked past the February CPI, focusing instead on the anticipated impact of the Iran conflict on energy prices and future inflation [1]. The AUD is now back to a net bearish lean, with gains only against the Swiss franc and New Zealand dollar [1].
Expectations of persistently high inflation and a high interest rate environment in Australia kept the AUD defensive early Wednesday. The fast-changing macroeconomic landscape has increased volatility, requiring traders to remain vigilant and well-capitalized to navigate the market [1].
CONCLUSION
Australia's February CPI data showed a slight cooling, but market participants are more concerned about the inflationary impact of the Iran conflict and rising energy prices. The Australian dollar remains under pressure, with expectations of higher inflation and continued rate hikes shaping a bearish outlook. Traders are bracing for increased volatility as the macroeconomic environment evolves rapidly.