The Australian Dollar surged to a new record high against the weaker Dollar today, peaking at a new 29-year high of 1.1079 following the release of inflation data today.
CPI came in much higher than expected at 0.9% in the second quarter. Economists had forecast a 0.7%. The alarming rise in consumer prices may out a rate hike back on the agenda for this year.
This puts the Reserve Bank of Australia in a difficult position now since had signalled that the benchmark interest rate was high enough and would probably not raise rates anymore this year. The RBA recently said it would be prudent to wait a while before hiking rates, given a patchy domestic economy and uncertainty abroad.
But with inflation outstripping the RBA’s own forecasts, a hike from September onwards now seems a possibility. The high reading starkly challenged the markets’ dovish expectations on rates given debt worries in Europe and the United States.
The Aussie is expected to advance further buy the end of the week as long as the U.S. congress still doesn’t deliver a plan for its debt ceiling.
U.S. lawmakers have one week left to come to an agreement and produce a deficit-cutting plan and to raise the legal $14.3 trillion debt limit before August 2nd.