Australia CPI expected to move further away from RBA's goal

• The Australian monthly Consumer Price Index is forecast at 3.6% YoY in October.
• The Reserve Bank of Australia will meet one more time this year, on December 8-9. 
• The Australian Dollar holds near its recent multi-month lows against the Greenback.

Australia will release the first complete Monthly Consumer Price Index (CPI) on Wednesday, using the October 2025 reference month, and it is expected to show inflation rose 3.6% year over year, slightly above the previous reading of 3.5%. 

The Australian Bureau of Statistics (ABS) announced the transition from quarterly to monthly data back in July, noting that “a complete, internationally comparable Monthly CPI as Australia’s primary measure of headline inflation will provide better information for monetary and fiscal policy decisions that have a direct impact on all Australians.”

The figure will be published two weeks ahead of the Reserve Bank of Australia (RBA) monetary policy meeting, scheduled for December 8-9. The RBA maintained the Official Cash Rate (OCR) at 3.6% following the November meeting, amid policymakers noting that inflation has increased back above their 2–3% target range, where they expect it to stay for a while. Officials also noted that the unemployment rate has risen slightly, but the job market is still healthy and is expected to remain so.

Ahead of the CPI release, the Australian Dollar (AUD) trades around 0.6450 against the US Dollar (USD).

What to expect from Australia’s inflation rate numbers?

As previously noted, the ABS is forecast to report that the monthly CPI rose by 3.6% in the year to October, matching the September estimate. 

That’s well above the RBA’s target of keeping inflation between 2% and 3%. Given that policymakers already anticipate inflation will be above 3% for much of next year before declining to the middle of the target range by late 2027, the figure should have a limited impact on the AUD/USD. If something, it will confirm what market players already believe: that the RBA will not cut the OCR. In fact, speculative interest suggests there are rising odds for a rate hike unless the labour market weakens meaningfully in the upcoming months.

Bets against an interest rate cut rose with the release of the latest inflation figures. Quarterly inflation in the three months to September rose by 1.3%, the fastest quarterly increase since early 2023. Also, annual inflation jumped to 3.2% from 2.1% in Q2, amid a spike in electricity costs. Food and energy prices also climbed, with food inflation remaining particularly sticky. 

Signs of a strong labor market are exacerbating the scenario: The latest ABS employment report showed that the country added 42.2K new jobs in October, wildly exceeding expectations of 20K and much better than the 12.8K gained in September. At the same time, the Unemployment Rate decreased to 4.3%, below expectations of 4.4% and the 4.5% posted in the previous month. Finally, the participation rate held near record highs at 67%.

Low unemployment rates, strong employment growth, and high participation rates, coupled with inflation well above the RBA’s comfort zone, sustain the central bank’s hawkish stance and push the odds of additional rate cuts in the foreseeable future further away. 

Meanwhile, market participants are slowly resuming bets on an upcoming United States (US) Federal Reserve (Fed) interest rate cut in December. The Fed trimmed interest rates by 25 basis points (bps) at its October meeting, but clouded hopes for a similar move in December amid government shutdown uncertainty. As the federal government reopened and US economic data slowly returned to traders’ desks, the odds of a 25 bps cut in December are rising. The US Dollar (USD) strengthened following the Fed’s October announcement, but the run seems to have lost steam. 

How could the Consumer Price Index report affect AUD/USD?

As said, the anticipated inflation data should confirm the RBA’s hawkish stance and hence, result in a firmer AUD. This, combined with a slowly weakening USD amid rising bets for a Fed rate cut in December, should result in a bullish AUD/USD. A higher-than-anticipated inflation would be more worrisome and trigger a strong AUD/USD rally, at least in the near term.

If the data comes in softer than expected, yet still above 3%, the scenario should remain the same. However, in the wild case that annual inflation results below 3%, market players will rush to bet on an RBA interest rate cut, and could see AUD/USD plummet. This late situation, however, seems unlikely. 

As previously mentioned, the AUD/USD pair hovers around 0.6450 ahead of the CPI release, trading not far above a fresh three-month low of 0.6421. The pair fell to such a low due to persistent USD strength following the Fed’s October monetary policy announcement. 

Valeria Bednarik, FXStreet Chief Analyst, notes: “From a technical point of view, the AUD/USD pair has decelerated its slide, but the risk remains skewed to the downside. It trades higher since bottoming near 0.6420 on Friday, yet gains remain modest, with the upside capped by sellers aligned ahead of the 0.6500 threshold. The pair could reach that level with the anticipated readings, and run beyond it on a higher-than-expected outcome, with the next relevant resistance levels at 0.6530 and 0.6570.”

Bednarik adds: “The technical configuration, however, favors a slide, particularly if the pair remains capped by the aforementioned 0.6500 mark. Softer-than-anticipated readings aligning with the technical frame could see the pair retest the aforementioned monthly low at 0.6421, with additional declines targeting the 0.6390 area.”