Inflation in Australia is still an important topic in the foreign exchange market because it attempts to determine the next monetary policy of the central bank. In sharp contrast to the consumer inflation data released earlier this week, the weak growth of the producer price index is surprising. The growth rate in the previous quarter was 0.7% (expected to be 1.7%), and the annual rate slowed from 6.4% to 5.8%.

Alex kuptsikevich, senior analyst of fxpro, pointed out that it is reasonable to expect inflation pressure to ease in the next quarter as producer inflation exceeds consumer inflation. Interestingly, the growth rate of PPI in Australia is lower than that of CPI. The former reached a peak of 6.4% in the third quarter of 22 years, while the latter reached 7.8% in the fourth quarter of 22 years.

Retailers are willing (and able) to pass on costs to consumers because of strong domestic demand. The central bank can further raise interest rates to curb domestic demand and the overheated labor market.

The cooling of producer inflation has strengthened the view that at the next meeting on February 7, it is sufficient to raise interest rates by another 25 basis points. On the other hand, the high growth of consumer prices shows that there will be several interest rate hikes before the Australian Central Bank suspends.

The data released by Australia today stopped the rise of AUDUSD above 0.7130 and fell below 0.7100. From then on, this pair of currencies also reversed to decline in August.