A recent private inflation survey in Australia shows a monthly decrease of -0.3%, following a previous increase of 0.9%. The year-on-year inflation change is now at 2.8%, a slight drop from the previous 2.9%. Core inflation, measured by the trimmed mean from the Melbourne Institute’s survey, fell by 0.2% month-on-month in August. This brings the core inflation rate to 2.4% year-on-year, down from 2.6%.

Currency Movements

After these figures were released, the AUD/USD currency pair fell to a session low of around 0.6537. This decline in the inflation survey indicates that price pressures are easing more quickly than expected. We view this as a dovish sign for the Reserve Bank of Australia (RBA), making further rate hikes less likely. The market is now focused on “when will they cut?” rather than “how high?” The official cash rate has been steady at 4.35% for most of 2025. This data is important ahead of tomorrow’s RBA meeting. Market pricing now shows a 55% chance of a 25-basis-point rate cut by December, up from 25% at the end of last week. This reinforces the belief that the RBA’s next move will be a cut.

Investment Strategies

For our currency positions, it looks like the Australian dollar will likely decrease. We should think about buying AUD/USD put options to prepare for a potential drop below the key level of 0.6500. Another strategy is to sell out-of-the-money AUD/USD calls, as any rallies may be limited. This disinflationary trend suggests that Australian bond yields may have peaked. We can take advantage of this by buying 3-year and 10-year Australian government bond futures, which should increase in value as yields fall. The 10-year yield, which was above 4.20% in July 2025, might now target around 3.80%. The possibility of earlier rate cuts is a positive factor for the local stock market. After the slow performance of the ASX 200 during the high-rate period of late 2024 and early 2025, this change could lead to a rally. We should consider buying call options on the ASX 200 index for upside exposure, especially in interest-sensitive sectors like technology and real estate. Create your live VT Markets account and start trading now.

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