Australian Dollar: RBA rate rise prospects strengthen on hot CPI – BBH

Australian inflation exceeded expectations, with headline and trimmed mean Consumer Price Index (CPI) readings above the Reserve Bank of Australia’s (RBA) August projections. According to Brown Brothers Harriman’s Elias Haddad, this strengthens the case for further RBA tightening, although AUD/USD has been unable to break above its 200-day moving average. Futures have responded by raising the implied probability of a November hike to 4.85% and pricing in a further move in Q1, lending support to the Australian Dollar.

Stronger inflation bolsters the case for further tightening

"AUD/USD failed to break above resistance at its 200-day moving average (0.7056), but immediate support is offered at 0.7000."

"Australia inflation beat expectations, strengthening the case for another RBA hike and underpinning AUD. September headline CPI rose 4.3% y/y (consensus: 4.2%) vs. 4.0% in August reflecting rising housing and transport costs."

"Inflation is materially worse than the RBA assessed in August, when it forecast year-end headline CPI at 3.6% and trimmed mean at 3.3%. This argues for additional tightening. RBA cash rate futures raised odds of a 25bps hike to 4.85% on November 3 from 60% to 85%, and increased bets on another hike in Q1."

"Trimmed mean CPI matched consensus at 3.6% y/y up from 3.5% in August. But the policy-relevant Q3 trimmed mean CPI ran hot at 3.7% y/y (consensus: 3.6%) vs. 3.6% in Q2."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)