Brown Brothers Harriman’s (BBH) Elias Haddad expects Australia’s July Consumer Price Index (CPI) to ease, with headline and trimmed mean inflation drifting lower, in line with softer labor conditions and wage growth. Reserve Bank of Australia (RBA) Minutes and Q2 capex will shape rate expectations, with futures still pricing a 60% chance of one more hike. Haddad sees risks skewed toward an extended pause, but highlights attractive carry and commodity exposure as AUD tailwinds.

Inflation eases as RBA seen pausing

“Australia CPI inflation seen easing in July (Wednesday). Headline CPI is expected at 3.3% y/y vs. 3.8% in June while trimmed mean CPI is expected at 3.5% y/y vs. 3.6% in June. The monthly CPI is Australia’s primary measure of inflation, but the RBA continues to focus on trimmed mean inflation from the quarterly CPI.”

“The RBA projects the trimmed mean CPI to edge down to 3.3% y/y by end-December from 3.6% y/y in Q2, consistent with softening labor market conditions and cooling private sector wage growth.

“The RBA Minutes of the August meeting (Tuesday) will offer some insights on the likelihood of another hike, while Q2 private capital expenditure data (Thursday) will help shape GDP forecasts ahead of the September 2 release. RBA cash rate futures continue to imply 60% odds of one final 25bps hike by year end to 4.60%.”

“In our view, the risk is skewed towards a more extended pause in the RBA tightening cycle because policy is already somewhat restrictive. Still, Australia’s attractive carry alongside the country’s strategic exposure to commodities linked to energy, AI, and defense remain key AUD tailwinds.”