The Melbourne Institute’s July 2025 inflation index rose 0.9% month-on-month, the strongest increase since December 2023. This sharp rebound, following a modest 0.1% increase in June, has raised concerns about the Reserve Bank of Australia’s (RBA) future policy decisions, especially given the ongoing uncertainty surrounding the supply chain and fluctuating consumer demand.
Despite the July increase, overall inflation, as measured by the Australian Consumer Price Index (CPI), for the quarter ending June 2025 rose only 0.7% quarter-on-quarter and 2.1% year-on-year, reaching its lowest level since March 2021. Both core and average inflation are now near the lower end of the RBA’s 2%-3% target range. Services inflation is also at its lowest since June 2022, at 3.3% year-on-year.
The RBA has warned that while core inflation is expected to gradually decline, it could temporarily rise to the upper end of its target range by the end of 2025 and into 2026, primarily due to the planned withdrawal of energy subsidies for households and increased external risks, such as renewed trade tensions between the United States and China.
In light of the higher-than-expected readings from Melbourne, market speculation has intensified regarding the possibility of a slowdown in the pace of the RBA’s interest rate cuts, supporting the AUD’s strength in the FX market today. However, the swaps market does not show this kind of perspective change, thus visible changes might be just temporary.
Heatmap showing volatility in the FX market today. The AUD is currently gaining against all major domestic currencies. Source: xStationwych. Źródło: xStation
The AUD/JPY pair is rebounding strongly today after last week’s test of the 200-day exponential moving average (golden line on the chart), which is an important control point defining the overall long-term uptrend. This zone remains the most important support point on the chart at the moment. However, the local highs from August 1 and July 31, near 97 yen per Australian dollar, remain important resistance. Source: xStation
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