Insights 
VT 
Australian consumer inflation expectations rose to 5% in June 2025, up from May’s 4.1%, according to the Melbourne Institute Survey. This change suggests a growing concern among consumers regarding future price increases.
Currency movements have seen the AUD underperforming during the session, as the EUR, GBP, JPY, and CHF have gained against the USD. The CAD remains stable, while both the AUD and NZD show weakness in the market.
Rba’s Plans And Inflation Expectation
Recently, there have been reports indicating the RBA’s plans to cut its cash rate several times starting in August 2025. Additional rate reductions are anticipated in November 2025, followed by further cuts in February and May 2026.
These data points, taken together, paint a rather clear picture for us. The latest jump in inflation expectations from 4.1% to 5.0% is not a subtle move. It reflects what households believe will happen to prices over the next year—and that shift upward tends to feed into actual price-setting and wage demands. This is where we keep a close eye on such sentiment surveys. If people expect higher prices, they start behaving accordingly, and it becomes harder for central banks to keep inflation steady.
Rising expectations like these place the Reserve Bank under uncomfortable pressure. On the one hand, the economy may still justify relief in borrowing costs as growth figures soften and global demand loses momentum. On the other, surging inflation expectations complicate any easing path, because pushing rates down too quickly while people think prices are going up tends to destabilise goals around consumer stability. The fact that there’s already a well-defined timeline of expected cuts—beginning in August and stretching into 2026—makes the situation somewhat tricky.
What we’re seeing in the Australian dollar is rather straightforward. It’s showing softness across the board, underperforming while other major currencies strengthen. Typically, this kind of broad-based weakness is taken as a signal that rate expectations are diverging from peers. The euro, sterling, and yen—having gained on the day—suggest their respective economies or banks may be on a different footing, perhaps tighter or at least perceived to stay elevated for longer. Meanwhile, the loonie hasn’t moved much, pointing to more neutral positioning in Canada.
Currency Movements And Economic Implications
These dynamics don’t happen in isolation. If inflation pressures remain but cuts are still priced in, and that pricing deepens, downward pressure on the currency might build further. That feeds into import costs, potentially reinforcing inflation, which then circles back to central bank constraints. For us, this looping relationship is important. The inflation outlook, central bank credibility, forward guidance, and market pricing—these all pull on one another.
Stevens’ earlier commentary around staged cuts later this year and into next suggests a measured easing pace. Yet each new piece of inflation data adds complexity to our next move. From a trade perspective, especially those managing rate differentials or cross-currency volatility, clarity on the short end remains limited. The pronounced shift in expectations may drive repricing in short-term rates markets—particularly if upcoming data do not cool price sentiment.
The immediate reaction in FX markets reflects that expectation overhang. We’ve seen the Aussie slip even on a day without massive external headlines, and the softness in the Kiwi tells us that the entire region may be trading as a proxy for looser expected policy. The Bank’s credibility and clarity will matter more than ever in guiding front-end curve positioning.
As we read it, near-term moves should reflect inflation prints and any change in official tone. Those allocating capital based on interest rate curves or relative currency strength would do well to monitor changes in communication. It wouldn’t take much—one data release or a shift in official rhetoric—for expectations to be re-anchored once again.
