Australia inflation gauge hits 20-month high, Aussie gains ground

[Ben Graham]

The Australian dollar has extended its gains on Monday. In the North American session, AUD/USD is trading at 0.6483 up 0.22% on the day.

The US dollar made inroads last week against all the major currencies except the yen and gained 1.5% against the Australian dollar.

Australian MI inflation gauge jumps 0.9%

Australia's Melbourne Institute inflation guage soared 0.9% m/m in July, up sharply from 0.1% in June and marking the highest rise since Dec. 2023.

The MI gauge, which provides a monthly guide to consumer inflation (official CPI is published quarterly), will no doubt raise concerns at the Reserve Bank of Australia, which has been cautious about cutting rates due to inflation worries.

Last week, CPI for the second quarter eased to 1.9%, down from 2.2% in Q1 and just below the central bank's target of 2%-3%. This cements a rate cut at the Aug. 12 meeting, after the RBA shocked the markets last month when it held rates. The markets had widely priced in a rate cut but the RBA defended its non-move, saying it wanted to see additional inflation data.

US nonfarm payrolls misses estimate

The week ended with a softer-than-expected US employment report. Nonfarm payrolls for July rose by only 73 thousand, missing the market estimate of 110 thousand. Adding to the bad news, the June and May reports were both revised sharply lower, down by a combined 258 thousand. The unemployment rate ticked higher to 4.2%, up from 4.1%.

The weak July reading and the downward revisions indicate that the labor market may be cooling more quickly than initially anticipated. The weak numbers support the case for the Fed to lower interest rates at the next rate meeting in September. The likelihood of a cut has climbed to 75%, compared to 63% on Thursday.

The soft jobs report should serve as a wake-up call regarding the effect of US tariffs on the economy, as the employment picture is worse than previously thought.

AUD/USD Technical

• AUD/USD has pushed above resistance at 0.6471 and is testing resistance at 0.6480. Next, there is resistance at 0.6489
• 0.6462 and 0.6453 are providing support

About the Author

AUDUSD 4-hour Chart, Aug. 4, 2025

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