Australian Dollar: How Does Hot CPI Strengthen RBA Hike Prospects? – BBH

The Australian Dollar is finding support from stronger-than-expected Australian inflation, which bolsters the case for further Reserve Bank of Australia (RBA) tightening, although AUD/USD has been unable to breach its 200-day moving average, according to Brown Brothers Harriman’s Elias Haddad. With both headline and trimmed mean Consumer Price Index (CPI) readings exceeding the RBA’s August projections, futures have lifted the implied probability of a November hike to 4.85% and priced in a further move in Q1.

Does the inflation surprise strengthen 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.)