January’s inflation data showed a y/y rate of 2.5%, slightly below estimates, consistent with the previous month, and in line with the Reserve Bank of Australia’s 2-3% target range. The core Trimmed Mean reading increased to 2.8% from December’s 2.7%.

These figures suggest that a rate cut by the Reserve Bank of Australia is unlikely in the near future, with attention on forthcoming quarterly data set for late April.

The AUD initially rose against the USD before declining, while the JPY followed a similar trend, falling to lows under 148.70 before recovering to around 149.50.

In the US, the House passed a budget bill supporting Trump’s 2025 agenda, which includes extending tax cuts and increased military spending. Chinese equities performed strongly, both on the mainland and in Hong Kong.

This latest inflation data reinforces the expectation that borrowing costs will remain steady in the short term. The central bank has little reason to lower rates while inflation stays within its preferred range. The uptick in the core measure hints at persistent price pressures, even though the overall annual figure remains stable. Markets will scrutinise the next set of quarterly figures in April for further confirmation of trends.

Initially, the currency’s jump suggested that traders interpreted the inflation figures as reducing the likelihood of an early rate reduction. However, the subsequent reversal indicates that other factors, such as broader risk sentiment and shifts in the US dollar, weighed on its performance by the end of the session. The movement in the yen followed a comparable pattern, with a dip below 148.70 before a recovery closer to 149.50. Changes in interest rate expectations, as well as external forces like US policy developments and global demand for safe-haven assets, contributed to the currency’s volatility.

In Washington, the House’s approval of a budget package aligned with Donald’s 2025 economic strategy added to market discussions around fiscal policy. Extending the current tax structure and directing more funds towards national defence remain core components, reinforcing higher government spending patterns. This approval process is being watched for its implications on growth and debt projections in the coming years.

Meanwhile, shares in Shanghai and Hong Kong extended their gains, aided by improved sentiment and signs of policy support. Stronger liquidity conditions and optimism surrounding economic measures helped sustain this momentum. Investors have shown a preference for beaten-down sectors as confidence in the local market recovers. The trajectory in these indices could influence broader risk appetite, particularly in the region’s related asset classes.