Australian inflation (CPI) rose 2.8% year-on-year in July, the fastest pace since July 2024. The housing cost component jumped 3.6% year-on-year, highlighting price pressures from rents and utilities. This figure was slightly above market expectations, signaling that the disinflation process is underway, but not yet complete.

In the bond market, Australian 3-year bond futures fell (yields rose) shortly after the hotter-than-expected CPI release. However, this reaction is expected to be temporary. The global picture still points to the Federal Reserve moving toward interest rate cuts, a key driver of short-term interest rates in the G10 (excluding Japan).

Against this backdrop, buying interest in short-term Australian bonds is likely to resurface as investors seek relatively attractive yields amid the prospect of global easing. This means that the spike in yields following the data could subside as market participants adjust their positions.

On the foreign exchange side, the AUD has the potential to maintain its purchasing power. Global conditions tending to favor a weakening US dollar, coupled with today's strengthening yuan, provide support for the Aussie. Going forward, the direction of the AUD and the Australian yield curve will be heavily influenced by the Fed's signals and subsequent global data. (ayu)

Source: Newsmaker.id