The Australian Dollar (AUD) faced some headwinds as preliminary inflation data revealed a decrease in core inflation, putting additional pressure on the currency. The trimmed mean measure of inflation, an essential indicator for the Reserve Bank of Australia (RBA), saw a decline to 3.2% year-over-year, down from 3.5%. This decline brings it closer to the RBA’s target range of 2% to 3%. Despite this, the Consumer Price Index (CPI) recorded an annual increase of 2.3% in November, surpassing expectations of 2.2%, and marking a rise from the previous two months’ increase of 2.1%. This is the highest CPI figure since August, largely supported by the effects of the Energy Bill Relief Fund rebate.
During the Asian trading session on Wednesday, the AUD/JPY traded around 98.40, recovering slight daily losses. Yet, the Australian Dollar continues to encounter difficulties against various currencies, particularly in light of the recent inflation figures. While the CPI remains within the RBA’s target for the fourth consecutive month, the steady decline in the trimmed mean could indicate a shift in the economic landscape.
On the other hand, the Japanese Yen (JPY) showed signs of strength amidst market speculation of potential intervention from Japanese authorities. Nevertheless, uncertainties surrounding the timing of the Bank of Japan’s next interest rate hike could temper the Yen’s upward momentum. The former Governor of the Bank of Japan recently released a research paper, projecting the need for further interest rate increases in the coming years. The paper suggests that the Japanese economy is likely to grow at an annual rate exceeding 1%, bolstered by rising real wages and strong consumer spending. This cautious approach taken by the Bank of Japan in rate adjustments aligns with favorable wage-inflation dynamics, which are crucial for sustaining inflation at the target level of 2%.
