The Australian Dollar weakened after the Australian Bureau of Statistics reported that the Consumer Price Index (CPI) rose 4.2% year-over-year in April, below the market consensus of 4.4% and down from 4.6% in March [1][2]. The monthly CPI increase was 0.4%, a sharp slowdown from the previous 1.1% reading [1]. The RBA Trimmed Mean CPI for April rose 0.3% month-on-month and 3.4% year-on-year [1]. Following the data, AUD/USD extended its gains for a second day, trading around 0.7160 during Asian hours, but the Australian Dollar lost ground overall due to the softer inflation figures [1].
The AUD/JPY cross pulled back from a two-week high near 114.35, dropping below 114.00 and snapping a two-day winning streak, as the softer inflation data limited upside momentum [2]. Despite the decline, the CPI reading remains well above the Reserve Bank of Australia’s 2% to 3% target, which some analysts believe could support the case for a further rate hike at the RBA’s August meeting [2]. The Australian Dollar was the strongest against the Canadian Dollar among major currencies, but generally weakened against others, including the US Dollar and Japanese Yen [2].
Meanwhile, the Japanese Yen edged higher on speculation of possible intervention by Japanese authorities to support the currency, with top officials warning that speculative short positions would be closely monitored [3]. The USD/JPY pair fell to near 159.20 in early Asian trading [3]. Bank of Japan Governor Kazuo Ueda highlighted that the ongoing Middle East conflict represents Japan's fifth major oil shock, with the impact depending on factors such as wages, expectations, and exchange rates [3].
Renewed tensions between the US and Iran also influenced market sentiment. The US military confirmed self-defense strikes in southern Iran, while Iran’s Revolutionary Guard Corps stated it reserved the right to retaliate against any ceasefire violations [1][3][4]. Iranian Supreme Leader Mojtaba Khamenei warned that Gulf powers would no longer shield US bases, and the US would lose its safe haven status in the region [1][4]. These developments have increased safe-haven demand for currencies like the Japanese Yen and US Dollar, while limiting upside for risk-sensitive currencies such as the Australian Dollar and Euro [3][4].
Forward-looking statements from analysts suggest that, despite the softer inflation data, the high CPI level could keep the RBA on a hawkish path, with markets considering a possible rate hike in August [2]. However, the downside for the Australian Dollar may be limited by external factors, including US Dollar weakness and ongoing geopolitical risks [1][2].
CONCLUSION
The Australian Dollar declined after April CPI data missed expectations, though inflation remains above the RBA’s target range. Geopolitical tensions in the Middle East and intervention risks in Japan have shifted market sentiment toward safe-haven currencies, resulting in a medium market impact. Analysts suggest the RBA could still consider a rate hike, but near-term AUD downside may be cushioned by external factors.