Australia CPI set to show sticky inflation, fueling RBA hawkish bets
- The Australian Consumer Price Index is forecast at 3.6% YoY in December.
- The Reserve Bank of Australia is increasingly expected to begin an interest rate hike cycle this year.
- The Australian Dollar runs against its battered American rival, with a test of 0.7000 on the table.
Australia will release the Consumer Price Index (CPI) report on Wednesday, and it is expected to show inflation rose 3.6% year over year in December, slightly above the previous reading of 3.4%. The monthly CPI is foreseen at 0.7% after posting 0% in November.
The Australian Bureau of Statistics (ABS) will also release the Trimmed Mean CPI, the Reserve Bank of Australia’s (RBA) favorite inflation gauge. The annual figure is expected to print at 3.2%, matching the previous reading, while on a monthly basis, the Trimmed Mean CPI is forecast at 0.2%, down from the 0.3% posted in the previous month.
Data will be released one week ahead of the RBA monetary policy meeting, scheduled for February 2-3. The central bank last met in December, when policymakers decided to leave the Official Cash Rate (OCR) on hold at 3.6%. The monetary policy statement showed that the Board noted inflation has picked up more recently, and that data “suggest some signs of a more broadly based pick-up in inflation, part of which may be persistent and will bear close monitoring.”
Ahead of the CPI release, the Australian Dollar (AUD) trades above 0.6900 against the US Dollar (USD), its highest since September 2024
What to expect from Australia’s inflation rate numbers?
ABS data is expected to confirm what market analysts suspect: that the RBA’s next monetary policy move will be a rate hike.
As previously noted, the ABS is forecast to report that the annual CPI rose by 3.6% in the year to December, higher than the 3.4% posted in November and above the RBA’s goal of keeping inflation between 2% and 3%.
Resurgent inflationary pressures, coupled with a pretty solid labor market, boosted the odds of an interest rate hike in Australia coming up next. The ABS recently reported that the country added 62,500 new jobs in December, and that the Unemployment Rate dropped to 4.1%, its lowest in seven months. Even further, underemployment fell to a multi-decade low.
Before the release of inflation data, the odds of an RBA rate hike at the February meeting stand at roughly 63%, according to Reuters.
Meanwhile, the AUD/USD pair trades at its highest since September 2024 amid broad US Dollar (USD) weakness. Market players continue to drop the Greenback amid skyrocketing levels of uncertainty, most stemming from United States (US) President Donald Trump’s decision.
President Trump resumed his trade war against the world after indicating that, since Norway did not award him the Nobel Prize, he would now focus on protecting his country rather than global peace. He kept escalating tensions with Europe amid his desire to possess Greenland, a Danish territory close to the US land, claiming it’s critical to US defense. Mid-January, however, he de-escalated tensions by announcing the framework of a deal, but without any details on the matter, market participants remain wary. Trump also threatened higher tariffs on South Korea on Tuesday, as the Asian country’s legislature still had not approved the trade deal achieved last year.
The US President claimed he will soon announce the next Chair of the Federal Reserve (Fed), as Jerome Powell’s mandate finalizes in May. Market participants clearly anticipate a hawk, regardless of the name, and keep betting on rate cuts throughout 2026, something still quite unclear.
How could the Consumer Price Index report affect AUD/USD?
In this scenario, the anticipated inflation data should confirm the RBA’s hawkish stance as previously noted, and hence, result in a firmer AUD. Higher-than-anticipated readings will have the same effect, further boosting demand for the Aussie.
If the data comes in softer than expected but still above 3%, the scenario should remain the same, though the AUD’s advance will be more restrained. However, in the unlikely event that annual inflation falls below 3%, market players will rush to bet against an RBA interest rate hike and could see AUD/USD fall as an immediate reaction to the news. Sustained losses, however, seem unlikely given the USD situation.
Valeria Bednarik, FXStreet Chief Analyst, notes: “From a technical point of view, the AUD/USD pair has room to extend its advance, despite overbought conditions clear in the daily chart. The pair is currently trading near a multi-month peak in the 0.6950 price zone, and shows no signs of slowing its advance. The rally could continue initially towards the 0.7000 threshold, while once above the latter, there’s little in the way towards 0.7100.”
Bednarik adds: “In the case of a retracement, the pair will find near-term support in the 0.6890 region, when the pair will finally close the weekly opening gap. A slide below the latter exposes the next static support at 0.6830.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Economic Indicator
Consumer Price Index (MoM)
The Monthly Consumer Price Index (CPI), released by theAustralian Bureau of Statistics on a monthly basis, measures the changes in the price of a comprehensive basket of goods and services acquired by household consumers. The MoM reading compares prices in the reference month to the previous one. A high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.
Read more.Next release: Wed Jan 28, 2026 00:30
Frequency: Monthly
Consensus: 0.7%
Previous: 0%
Source: Australian Bureau of Statistics
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