Australian Dollar: Will inflation data reinforce its yield advantage? – BBH

The Australian Dollar’s (AUD) yield advantage could widen if inflation strengthens the case for another 25bps cash rate hike to 4.85% in November. According to Brown Brothers Harriman’s (BBH) Elias Haddad, Australia’s September and Q3 Consumer Price Index (CPI) readings are expected to remain above the Reserve Bank of Australia’s year-end forecasts, which would support recent warnings of a deterioration in the inflation outlook.

Will CPI reinforce the case for further RBA hikes?

"Headline CPI is expected to rise to 4.2% y/y vs. 4.0% in August, while trimmed mean CPI is projected to hold at 3.6% y/y for the fourth month and second straight quarter."

"These readings would leave inflation above the RBA’s year-end forecasts of 3.6% for headline and 3.3% for trimmed mean. That would back Deputy Governor Andrew Hauser’s warning last week that the inflation outlook is “materially worse” than assessed in August."

"Firmer inflation would also strengthen the case for a back-to-back 25bps RBA cash rate hike to 4.85% at the next November 3 meeting (70% priced in) and widen AUD’s yield advantage."

"AUD outperformed on a hawkish shift in RBA rate expectations."

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