
One Author Two contributers
One Author Two contributing Authors

Samuel Aryal
The Australian dollar is under pressure, with AUD/USD falling for a third day after the Federal Reserve’s less-dovish stance triggered renewed strength in the US dollar. Risk reversals show bearish bets building against the Aussie, while implied volatility continues to drift lower. This week’s spotlight is on Australia’s CPI and flash PMIs, alongside US PCE inflation, all of which could determine whether AUD/USD extends its retreat or finds support.
Australia’s flash PMIs for September are due on Tuesday. While they are not usually a major market mover, they continue to show the economy in expansionary territory. July’s services report highlighted the steepest increase in activity in more than three years, alongside gains in employment, business activity, exports, and the forward-looking future activity index. Domestic and external demand are both improving.
Price pressures remained elevated in July but showed signs of easing. If this trend is repeated in the August data, it could raise hopes for a softer CPI reading in Wednesday’s monthly inflation release. That said, last month’s inflation surprise to the upside leaves open the question of whether it was a temporary blip or the start of a new inflationary phase.
Wednesday’s inflation report will be closely watched to determine whether July’s sharp CPI rise was mainly due to the expiry of electricity subsidies, or if price pressures were more broadly spread. Trimmed mean CPI rose 0.6 percentage points in July, though this measure excludes the top 15% of volatile items, suggesting the reflation may have been subsidy-driven.
If inflation remains elevated or accelerates further, expectations for RBA rate cuts could be pushed well into next year. To gain confidence that July’s spike was temporary, traders would likely want to see annual trimmed mean inflation fall by at least 0.6 percentage points.
The relationship between the Australian dollar and China is realigning, with the 20-day correlation between AUD/USD and both copper and the CSI 300 index now back above 0.8. The correlation with the New Zealand dollar also remains strong, as does the inverted relationship with the US dollar.
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