Softer CPI Puts the RBA Outlook in Focus

• Australian inflation came in slightly softer than expected, with headline CPI at 4.0% y/y and trimmed mean at 3.6% y/y. Price pressures were softer across groceries, new dwellings, motor vehicles and childcare, taking some heat out of the near-term inflation outlook.
• Markets have pared expectations for another RBA hike, with around 27% priced for November, down from 45% before this week’s decision, while just over one full hike remains priced by March. Inflation is still elevated, but conviction around the next move has eased.
• US core PCE rose 0.2% m/m, below the 0.3% consensus, while Q2 GDP was revised higher to 2.2% annualised. Softer inflation reduced October Fed hike pricing, although stronger activity kept pressure on longer-dated Treasuries, with the 10-year near 5.30%.
• Ahead today, Australian job vacancies, the trade balance and the RBA Financial Stability Review are all on the domestic calendar, while US ISM manufacturing rounds out the key offshore release to watch.