Australian Dollar Slips on Softer Inflation Outlook

Key Moments

Australian Inflation Eases, Pressuring the AUD

AUD/USD is trading around 0.7160 during Asian hours on Wednesday, with the pair coming under pressure as the Australian Dollar (AUD) weakens following the latest inflation update. This move comes even as AUD/USD is described as extending its gains for a second consecutive day, underscoring the mixed dynamics in the pair.

Data from the Australian Bureau of Statistics (ABS) released on Wednesday show that the Consumer Price Index (CPI) rose 4.2% year-over-year, undershooting the market consensus of 4.4% and slowing from the 4.6% increase recorded in the 12 months to March 2026. On a monthly basis, CPI advanced 0.4% in April, down sharply from the previous 1.1% reading.

The Reserve Bank of Australia’s preferred core measure, the Trimmed Mean CPI, climbed 0.3% on the month and 3.4% on an annual basis in April, pointing to a moderation in underlying price pressures.

US Dollar Softens as Safe-Haven Bid Fades

Despite the weaker Australian data, the downside in AUD/USD may be cushioned by a softer US Dollar (USD). The greenback is edging lower as safe-haven demand fades, with traders maintaining hopes that the United States (US) and Iran could still reach an agreement even as tensions in the Middle East resurface.

Rising Geopolitical Strains Between the US and Iran

Iran’s foreign ministry has condemned recent US airstrikes in the southern Hormozgan province, calling them a “gross violation” of a fragile, seven-week-old ceasefire. The statement followed reports from Iranian media of explosions heard in the region early Tuesday morning.

Iranian Supreme Leader Mojtaba Khamenei said that Gulf powers will no longer be a shield for US bases, and the US will no longer have a safe haven in the region.

The US military confirmed it launched self-defense strikes in southern Iran, while Iran’s Revolutionary Guard stated it had targeted an American F-35 fighter jet and several drones that it said had violated Iranian airspace. IRGC also stated that it reserved the “legitimate and definite” right to retaliate against any ceasefire violations by the US.

Details of the Latest CPI Release

The Consumer Price Index (CPI), published monthly by the Australian Bureau of Statistics, tracks changes in the cost of a broad basket of goods and services purchased by households. It is the main gauge of headline inflation following the shift from quarterly to monthly readings for data from April 2024 onwards. The year-over-year figure compares prices in the reference month with those in the same month a year earlier. Higher CPI readings are typically viewed as supportive for the Australian Dollar, while lower readings are considered negative.