Australian Dollar: Hot CPI bolsters RBA hike prospects – BBH

Brown Brothers Harriman’s Elias Haddad notes AUD/USD has failed to clear its 200-day moving average, but stronger-than-expected Australian inflation data supports the case for further Reserve Bank of Australia (RBA) tightening. Headline and trimmed mean Consumer Price Index (CPI) are running above the RBA’s August projections, prompting futures to increase the implied probability of a November hike to 4.85% and to price in an additional move in Q1, underpinning the Australian Dollar.

Inflation surprise supports more 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.)