Australian Investors expect Higher Future Inflation

This morning has been busy in the Down Under and New Zealand. The Australia dollar (AUD/USD) barely budged after a solid rise in consumer inflation. The Australian dollar was already trading higher as investors digested comments made by Federal Reserve Chair Janet Yellen before the United States Congress, overnight.

Market investors had found her opening remarks, before Congress a bit dovish. She said that the “neutral” US interest rate is not far off and this lead markets to suspect that further interest rate rises may be scares. This sent the US Dollar lower during Asian trade hours.

Australian data showed that inflation expectations over the next year had risen in July, to 4.4 percent. This is a big increase from June’s 3.6 percent. Expectations have been tracking higher during the last several months thanks to stronger underlying price pressures.

Australian Dollar watches the RBA

The big elephant in the room is how this inflation expectation will make their presence felt in official consumer price numbers. The core price index (CPI) rose at an annualized 2.1 percent at its last print. However, the Reserve Bank of Australia (RBA) has remained dovish with its monetary policy. The RBA has kept rates at record lows, saying that that was necessary to maintain growth.

The AUD/USD Forex market fell lower after this news crossed the wires. It is not known if the AUD is retracing early gains or getting ready to spring higher.