Australia's July inflation reading came in above expectations, with fuel and travel costs leading the acceleration. The surprise to the upside narrows the Reserve Bank of Australia's room to hold rates steady. Markets are now pricing a higher probability of at least one additional rate hike.
Higher rates in Australia compress valuations for Australian equities and put pressure on rate-sensitive sectors like real estate and utilities. The Australian dollar may strengthen short-term as rate expectations rise, which creates headwinds for Australian exporters and commodity-linked earnings.
Reserve Bank of Australia board meeting: September 5. Next Australian CPI quarterly release: late October.
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