Australian Dollar: RBA risks seen underpriced – MUFG

Derek Halpenny at MUFG says the August RBA minutes and stronger-than-expected monthly CPI reinforce the risk of an earlier rate hike than markets currently price. With trimmed mean inflation holding at 3.6%, RBA inflation concerns are likely to persist, supporting the Australian Dollar, although MUFG warns that the currency is starting to look stretched.

RBA minutes and CPI back AUD

"But the minutes from the August RBA meeting were also released yesterday and the contents certainly point to the RBA being closer to a rate hike than currently implied by market pricing."

"A full rate hike in Australia is not priced until Feb 2027 but the minutes from the August RBA meeting suggests the risk of another hike sooner are higher."

"Today the monthly CPI data was released, and the data has reinforced the view that the RBA could prove more active than was priced in the market."

"The focus of the RBA is likely to be on the trimmed mean YoY rate which failed to slow as was expected, remaining unchanged at 3.6%. The data suggests RBA inflation concerns will continue."

"That points to AUD continuing to perform well in current market conditions. However, the risks are starting to shift we are mindful of AUD starting to look stretched."

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