Australian Dollar Struggles After Mixed Inflation Data

Key Moments

Australian Dollar Attempts Rebound From Multi-Month Lows

The AUD/USD pair attracted some dip-buying during the Asian session on Wednesday after the release of softer Australian consumer inflation data. The move helped the pair retrace part of the prior session’s decline that had dragged it toward the 0.6900 level, its weakest reading since early April. Despite the modest bounce, spot prices trading around the 0.6920-0.6925 band have struggled to extend gains in the face of a firm US Dollar.

Australian CPI Softens, but Core Measure Firmed

Data from the Australian Bureau of Statistics (ABS) showed that the headline Consumer Price Index (CPI) slowed unexpectedly in May, easing to 4% year-over-year from 4.2%. On a monthly basis, CPI fell 0.7% in May, a sharper drop than anticipated, after a 0.4% increase in April.

However, the weaker headline figures were partly counterbalanced by a stronger core measure. The Trimmed Mean CPI rose 0.4% on the month, with the year-over-year rate ticking up from 3.4% to 3.6% in May.

Muted Market Reaction and RBA Outlook

The immediate response in markets remained subdued. The easing of concerns about an energy shock, following the US-Iran peace deal, has reinforced expectations that the Reserve Bank of Australia (RBA) is likely to keep interest rates on hold in the coming months. This view has discouraged traders from building substantial long positions in the Australian Dollar.

At the same time, persistent demand for the US Dollar has further restricted any meaningful recovery in AUD/USD, keeping the pair under pressure despite the initial post-data bounce.

US Dollar Strengthens on Fed Rate Hike Expectations

The US Dollar Index (DXY) has climbed to a new high since May 2025, supported by growing expectations that the US Federal Reserve (Fed) will lift interest rates. Market participants have increased wagers that the Fed will raise borrowing costs by at least 25 basis-points (bps) by year-end after the central bank adopted a surprisingly hawkish stance last week.

This renewed Fed tightening narrative has offset positive sentiment stemming from the US-Iran peace deal and is likely to continue underpinning the USD. Against this backdrop, participants are likely to remain cautious about aggressive bullish positions in AUD/USD.

Australian Trimmed Mean CPI Snapshot

The Trimmed Mean Consumer Price Index (CPI) is published monthly by the Australian Bureau of Statistics and is used as a gauge of underlying inflation. It is calculated as a weighted average of price changes from the middle 70% of the distribution of all CPI components, helping to smooth out the impact of more volatile items. The year-over-year figure compares prices in the reference month with the same month a year earlier. In general, higher readings are considered supportive of the Australian Dollar, while lower readings are seen as negative.