The AUD got a decent boost this week after hotter-than-expected CPI data for May which showed the weighted YY measure print at 4.0% and the CPI YY SA gauge jump to 4.1%.
As a result of the beat markets repriced quite aggressively on the rate expectations side, with probabilities for a hike in one of the upcoming meetings moving higher across the board.
Below we can see the sharp climb in the expected rate path for the RBA at the time (versus a week and a month ago).
However, despite the rate repricing the AUD gave up some of the gains yesterday following comments from RBA's Hauser.
Why did we see this reaction, and what does it mean for the RBA and the AUD heading into the next meeting and upcoming data?
Well, below is an extract for his comments from yesterday.
His comments didn't sound very convincing of somebody who wanted to hike after this week's CPI data. If anything, his comments sounded like he was trying to calm down expectations of a hike.
Both the AUD and money markets reacted dovishly to his comments. Below is what rate expectations for the upcoming policy meetings looked like ahead of his comments (higher probability for hikes at upcoming meetings):
And here we can see how money market pricing shifted slightly more dovishly after his comments (seeing a higher probability of a hold):
These shifts of course doesn't mean that a hike won't happen, but his comments were enough to see some moderation in rate expectations. It probably won't be enough to take hikes off the table, but at a minimum poses a marginal head wind for recent AUD longs to consider.
