Australia's Core Inflation Exceeds Expectations, Strengthens Currency

Australia's core inflation for the first quarter of 2025 came in higher than anticipated, with the trimmed mean gauge rising 0.7%, surpassing both the previous quarter and market expectations. This stronger-than-expected inflation has led to a rise in the Australian dollar and tempered market hopes for a rapid series of interest rate cuts by the Reserve Bank of Australia (RBA). While annual core inflation returned to the RBA's 2-3% target range for the first time in three years, policymakers remain cautious, signaling that it may be too soon to declare an end to inflationary pressures. Markets are still nearly unanimous in expecting a modest 25 basis point rate cut in May, but the outlook for further easing has become less aggressive. The RBA is also monitoring global trade uncertainties, particularly those stemming from US tariffs, as it deliberates its monetary policy path. Overall, the data supports a gradual approach to rate cuts, which could continue to support the Australian dollar relative to other currencies.