The Australian dollar has fallen below $0.70 and reached a nine-week low after August inflation came in slightly softer than markets expected, prompting a sharp reassessment of the outlook for further Reserve Bank of Australia tightening. The move comes immediately after the RBA raised its cash rate by 25 basis points to 4.60%, its highest level since 2011.

Australia’s monthly CPI increased 0.4% in August, below the 0.5% market expectation, while annual inflation accelerated to 4.0% from 3.5% in July but remained below the 4.1% forecast. The trimmed-mean measure, which is closely watched as an indicator of underlying inflation, increased 0.2% on the month, also below expectations, while annual trimmed-mean inflation remained at 3.6%.

The data do not remove the RBA’s inflation problem, with underlying inflation still above the Bank’s 2–3% target band. However, the smaller-than-expected monthly increase reduces the immediate pressure for another rate increase and shifts attention toward whether inflation continues to moderate under already restrictive financial conditions.

Market Snapshot

Australian Dollar Price Action

AUD/USD has fallen below the $0.70 level as traders adjust to the possibility that the RBA may not need to follow its latest rate increase with another move in the immediate term.

The decline is notable because the RBA has just delivered a 25-basis-point increase to 4.60%. The currency reaction therefore reflects the difference between the rate decision itself and expectations for what comes next.

The latest inflation report has weakened the case for an immediate follow-up hike, leaving the Australian dollar more dependent on incoming economic data and movements in the U.S. dollar.

August Inflation Comes in Below Expectations

Australia’s August CPI increased 0.4% month-over-month, below the 0.5% expected increase. Annual inflation nevertheless accelerated to 4.0%, up from 3.5% in July.

The headline figure therefore presents a mixed picture. Inflation remains substantially above the RBA’s target range, but the monthly momentum is softer than markets had anticipated.

That distinction is important for monetary policy. The RBA is attempting to bring inflation down without allowing price pressures to become entrenched, while higher interest rates are already working to restrain demand.

Underlying Inflation Remains Elevated

The trimmed-mean CPI rose 0.2% in August, below the 0.3% expected increase, while annual trimmed-mean inflation remained at 3.6%.

The persistence of underlying inflation means the latest report does not represent a clean return to price stability. The RBA’s September decision explicitly highlighted elevated inflation, domestic capacity pressures, higher global energy prices and increased inflation risks associated with the Middle East conflict.

The softer monthly reading nevertheless gives policymakers additional time to assess whether existing monetary restraint is beginning to reduce underlying price pressures.

RBA Rate Reaches 4.60%

The RBA raised the cash rate by 25 basis points to 4.60% at its September meeting. The Bank said inflation remains elevated and that several upside risks are materialising, while also noting that growth has slowed and consumer spending is easing gradually.

The latest increase means monetary policy is already operating at a significantly restrictive level. The RBA’s August outlook also indicated that previous rate increases had not yet passed fully through the economy and that financial conditions were expected to slow domestic demand.

The question for AUD/USD is therefore increasingly about the next rate decision rather than the rate increase that has already occurred.

Rate Expectations Shift After the CPI Report

The softer inflation figures have reduced expectations for another near-term rate increase. Markets are now placing considerably less emphasis on a November move, while expectations for another increase have shifted further into the future.

This change in rate expectations can have a direct effect on the Australian dollar because currency valuations incorporate the expected future interest-rate differential rather than simply the current cash rate.

With the RBA already at 4.60%, evidence that inflation may be moderating could encourage traders to reduce expectations for additional tightening, removing an important source of support for AUD/USD.

U.S. Dollar Adds to Australian Dollar Pressure

The Australian dollar is also dealing with a relatively firm U.S. dollar backdrop.

For AUD/USD, this creates a two-sided challenge: softer Australian inflation reduces expectations for further RBA tightening while a stronger U.S. dollar increases the exchange-rate pressure from the other side of the pair.

The Australian dollar therefore needs either renewed domestic inflation pressure, stronger Australian economic data or a weaker U.S. dollar environment to rebuild the monetary-policy support that has recently weakened.

Bullish Sentiment

1. Inflation remains above target: Annual CPI at 4.0% and trimmed-mean inflation at 3.6% keep price pressures well above the RBA’s 2–3% target.
2. The cash rate is already at 4.60%: Australia’s relatively high policy rate continues to provide an interest-rate differential that can support the Australian dollar.
3. The RBA remains focused on inflation: The latest policy statement indicates that the Board continues to view elevated inflation and upside risks as important policy concerns.
4. Further inflation persistence could revive tightening expectations: If upcoming data show renewed price pressure, markets could again increase expectations for another rate increase.
5. Australian economic activity remains resilient: The RBA noted that June-quarter growth was stronger than expected at the margin, even as overall growth has slowed.

Bearish Sentiment

1. August CPI undershoots expectations: The 0.4% monthly increase is weaker than the 0.5% forecast.
2. Underlying inflation momentum is softer: Monthly trimmed-mean inflation rises just 0.2%, below the 0.3% expectation.
3. Near-term rate expectations decline: The inflation miss reduces the urgency for another immediate RBA increase.
4. AUD/USD breaks below $0.70: The move places the Australian dollar under renewed technical pressure.
5. The U.S. dollar remains a headwind: Continued dollar strength can compound the impact of weaker Australian rate expectations.

Price Forecast: What Traders Are Watching

The $0.70 level remains an important reference point for AUD/USD after the Australian dollar moved below it.

The next direction is likely to depend less on the absolute level of Australian inflation and more on whether upcoming data confirm a sustained moderation in underlying price pressures.

A continuation of softer inflation would reinforce expectations that the RBA can pause after reaching 4.60%. In contrast, renewed acceleration in underlying inflation could bring additional tightening expectations back into the market and provide support for the Australian dollar.

The U.S. dollar will remain the other major variable. Even if Australian inflation stabilizes, sustained dollar strength could keep AUD/USD under pressure.

Supply Outlook

Currency supply is influenced by Australian exporters, international investment flows and the willingness of domestic companies to convert foreign-currency receipts.

A weaker Australian dollar can increase the Australian-dollar value of foreign earnings for exporters, potentially influencing the timing of currency conversions. At the same time, changes in interest-rate expectations can alter international capital flows into Australian assets.

Demand Outlook

Demand for the Australian dollar remains closely linked to the Australian interest-rate outlook, commodity markets and global risk sentiment.

The 4.60% cash rate continues to provide a relatively high domestic yield, but the latest inflation data reduce expectations for additional near-term tightening. For AUD/USD, renewed demand is therefore likely to require either stronger Australian economic data, persistent inflation or a reduction in U.S. dollar strength.

Market Outlook for the Coming Sessions

The Australian dollar enters the next phase with the RBA cash rate at 4.60% but with markets less convinced that another increase is imminent.

The latest inflation data are not weak enough to eliminate concerns about Australian price pressures, but they are soft enough to reduce the urgency surrounding further tightening. That distinction is likely to remain central to AUD/USD trading.

The next Australian inflation, labour-market and activity indicators will be important in determining whether the latest CPI result represents the beginning of a broader moderation or simply a temporary slowdown in monthly price growth.

For now, the $0.70 level remains a key market reference as traders assess whether the RBA’s restrictive policy stance can continue to support the Australian dollar despite softer rate expectations.

Currency Hedger View

The Australian dollar’s reaction to the latest inflation data demonstrates how quickly currency markets can adjust when interest-rate expectations change.

For businesses with AUD/USD exposure, the key consideration is not simply Australia’s current 4.60% cash rate but how the expected path of Australian rates compares with U.S. monetary policy. A shift toward fewer RBA increases can alter the value of future currency conversions even while Australian interest rates remain historically elevated.

Businesses receiving Australian dollars and converting into U.S. dollars should therefore monitor both Australian inflation and the U.S. dollar environment when assessing future currency requirements.

Currency Hedger helps businesses and individuals manage international currency requirements while understanding the wider market forces influencing exchange rates.

Analysis Louis Roche – Today Markets

The Australian dollar’s decline below $0.70 reflects a change in the market’s expectations for the next stage of RBA policy rather than a reversal of Australia’s inflation problem.

Annual inflation remains at 4.0%, while trimmed-mean inflation remains at 3.6%, both above the RBA’s 2–3% target. However, the softer monthly CPI and trimmed-mean readings reduce the immediate pressure for another rate increase after the RBA has already lifted the cash rate to 4.60%.

The key question for AUD/USD now is whether inflation continues to moderate enough for the RBA to pause, or whether persistent underlying price pressure forces markets to rebuild expectations for further tightening. Until that becomes clearer, the Australian dollar remains vulnerable to changes in both domestic rate expectations and U.S. dollar strength.

Louis Roche – Today Markets