Week Ahead: Key inflation reports and the RBA interest rate decision in focus
Updated Updated Tue, 2025 May 27 04:38
Inflation data from several major economies will take center stage this week, alongside the RBA interest rate decision. The US economic calendar is relatively quiet, but market participants may continue monitoring the China-US tariff rollback and react to Moody’s recent downgrade of US credit ratings.
Canadian CPI in Focus: Will Slowing Inflation Support USD/CAD?
The upcoming inflation data from Canada may act as a potential catalyst for USD/CAD price movements. Markets are currently expecting a slowdown in April’s Consumer Price Index (CPI), with expectations for the headline rate to ease to 1.6% from 2.3% in March. A softer CPI reading may support the view of moderating price pressures and could influence the CAD, as it broadens the BoC room to consider rate cuts in the coming months.
In this scenario, growing dovish sentiment may help keep USD/CAD supported in the near term as investors position ahead of the BoC’s June policy decision. On the flip side, a hotter-than-expected inflation reading could trigger a bullish move in the CAD, as it would reduce the likelihood of near-term policy easing and signal that Governor Tiff Macklem and his team may need to hold a more hawkish line.
RBA Expected to Cut Rates as Inflation Eases
At its April meeting, the Reserve Bank of Australia (RBA) held the cash rate steady at 4.10%, following a 25bps cut in February—its first since 2020. While inflation has eased, the RBA stressed the importance of continued progress toward its 2–3% target range.
The Q1 2025 inflation data showed both headline and trimmed mean CPI returning to target for the first time since late 2021. Combined with balanced labour market conditions and global growth risks tied to elevated tariffs, this has led to market expectations of another 25bps cut to 3.85% at the upcoming meeting.
Some market participants anticipate a potential further reduction in August, potentially lowering the rate to 3.60% as the RBA gradually shifts away from restrictive policy.
UK CPI in Focus as Inflation Pressures Persist
UK inflation is forecasted by some analysts to rise to 3.3% year-on-year in April, up from 2.6% in March, marking the highest level since February 2024. Core inflation remains sticky, hovering between 3.0% and 3.5%, well above the Bank of England’s 2% target.
