CPI inflation drops to 0.7% QoQ in Q2 vs. 0.8% expected
Australia’s Consumer Price Index (CPI) rose 0.7% QoQ in the second quarter (Q2) of 2025, compared with the 0.9% increase seen in the first quarter, according to the latest data published by the Australian Bureau of Statistics (ABS) on Wednesday. The market consensus was for a growth of 0.8% in the reported period.
Annually, Australia’s CPI inflation eased to 2.1% in Q2 versus 2.4% prior and below the market consensus of 2.2%.
The RBA Trimmed Mean CPI for Q2 rose 0.6% and 2.7% on a quarterly and annual basis, respectively. Markets estimated an increase of 0.7% QoQ and 2.7% YoY in the quarter to June.
The monthly Consumer Price Index rose by 1.9% YoY in June, compared to the previous reading of 2.1% increase.
AUD/USD reaction to Australia’s Consumer Price Index data
The Australian Dollar (AUD) attracts some sellers following the inflation data from Australia.
Australian Dollar PRICE Last 7 days
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies last 7 days. Australian Dollar was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 1.61% | 1.29% | 0.98% | 1.18% | 0.63% | 0.40% | 1.44% | |
| EUR | -1.61% | -0.31% | -0.62% | -0.43% | -0.99% | -1.19% | -0.17% | |
| GBP | -1.29% | 0.31% | -0.28% | -0.11% | -0.68% | -0.87% | 0.18% | |
| JPY | -0.98% | 0.62% | 0.28% | 0.21% | -0.31% | -0.45% | 0.50% | |
| CAD | -1.18% | 0.43% | 0.11% | -0.21% | -0.52% | -0.55% | 0.27% | |
| AUD | -0.63% | 0.99% | 0.68% | 0.31% | 0.52% | -0.19% | 0.86% | |
| NZD | -0.40% | 1.19% | 0.87% | 0.45% | 0.55% | 0.19% | 1.06% | |
| CHF | -1.44% | 0.17% | -0.18% | -0.50% | -0.27% | -0.86% | -1.06% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
This section below was published at 21:30 GMT as a preview of the Australian inflation data.
- The Australian monthly Consumer Price Index is foreseen stable at 2.1%.
- Quarterly CPI inflation is expected to have modestly decreased in Q2.
- The Reserve Bank of Australia kept the OCR at 3.85% at its May meeting.
- The Australian Dollar is set to post lower lows vs its American rival.
Australia will release inflation updates on Wednesday, two weeks ahead of the Reserve Bank of Australia (RBA) monetary policy meeting, scheduled for August 11-12. The Australian Bureau of Statistics (ABS) will publish two different inflation gauges: the quarterly Consumer Price Index (CPI) for the second quarter of 2025 and the June Monthly CPI, which measures annual price pressures over the past 12 months. The quarterly report includes the RBA Trimmed Mean CPI, policymakers’ favorite inflation gauge.
The RBA’s Official Cash Rate (OCR) stands at 3.85% after policymakers delivered two 25-basis-point (bps) rate cuts throughout the first half of the year.
Ahead of the announcement, the Australian Dollar (AUD) trades at around the 0.6500 mark against its American rival.
What to expect from Australia’s inflation rate numbers?
The ABS is expected to report that the monthly CPI rose by 2.1% in the year to June, matching the May reading. The quarterly CPI is foreseen to increase by 0.8% quarter-on-quarter (QoQ) and by 2.2% year-on-year (YoY) in the second quarter of 2025. Additionally, the central bank’s preferred gauge, the RBA Trimmed Mean CPI, is expected to rise by 2.7% YoY in the same quarter, easing from the 2.9% advance posted in Q1.
Finally, the RBA Trimmed Mean CPI is forecast to increase by 0.7% QoQ, matching its previous quarterly reading. As it happened in Q1, the figures will fall within the RBA’s goal to keep inflation between 2 and 3%, which means the central bank could deliver additional interest rate cuts in the foreseeable future.
The RBA’s statement on monetary policy released after the July meeting shows officials remained concerned about the global trade conflict launched by the United States (US). While they consider the worst of it will likely be avoided, it is still a source of uncertainty.
Additionally, most officials “believed that lowering the cash rate a third time within the space of four meetings would be unlikely to be consistent with the strategy of easing monetary policy in a cautious and gradual manner to achieve the Board’s inflation and full employment objectives. While the flow of recent data had been broadly in line with earlier forecasts, they judged that some data had been slightly stronger than expected.”
However, “A minority of members judged that there was a case to lower the cash rate target at this meeting. These members placed more weight on downside risks to the economic outlook – stemming from a likely slowing in growth abroad and from the subdued pace of GDP growth in Australia.”
Such concerns are real, considering the ABS reported that the Australian economy expanded by 0.2% in the three months to March 2025, down from the 0.6% posted in the final quarter of 2024 and missing the expected 0.4%. On a positive note, annualised growth held at 1.3%, although missing estimates of a 1.5% gain.
At the same time, labor costs are a source of concern. According to the latest information available, wage inflation rose by 3.4% in the year to March, and by 0.9% in the first quarter of the year.
Tepid growth combined with upside risks to inflation amid labor costs growing at a faster rate than the RBA’s inflation target leaves policymakers between a rock and a hard place. While further interest rate cuts before year-end remain on the table, the most likely scenario will be another on-hold decision in August.
Meanwhile, concerns about the impact of US President Donald Trump’s trade war continue to ease. The US announced deals with Japan and the European Union in the last few days, while progressing in talks with China. As a result, the US Dollar (USD) surged across the FX board, leading to the AUD/USD pair falling to 0.6500, its lowest in two weeks.
How could the Consumer Price Index report affect AUD/USD?
The anticipated inflation readings would have no actual impact on the upcoming RBA decision, while easing price pressures should support officials’ wait-and-see stance. However, higher-than-anticipated inflationary pressures could prompt policymakers to make an earlier interest rate cut.
As previously said, the AUD/USD pair struggles at around 0.6500 ahead of the announcement, under pressure amid broad USD strength coming from trade-deal announcements.
Valeria Bednarik, FXStreet Chief Analyst, says: “The AUD/USD pair keeps posting lower lows and lower highs on a daily basis, in line with a continued decline. Speculation that the RBA may go for additional interest rate cuts should weigh on the Aussie, and push the pair towards the 0.6450 region, where it bottomed in July. Additional downward strength could result in AUD/USD falling towards the 0.6390 price zone.”
Bednarik adds: “The AUD/USD pair could surge should inflation results in line or lower than anticipated, yet with persistent USD demand, the uptick could be short-lived. The daily 20 Simple Moving Average (SMA) provides dynamic resistance at around 0.6545, while further gains expose the July peak at 0.6625.”
Economic Indicator
Monthly Consumer Price Index (YoY)
The Monthly Consumer Price Index (CPI), released by the Australian Bureau of Statistics on a monthly basis, measures the changes in the price of a fixed basket of goods and services acquired by household consumers. The indicator was developed to provide inflation data at a higher frequency than the quarterly CPI. The YoY reading compares prices in the reference month to the same month a year earlier. A high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.