Today’s release of Australia's Consumer Price Index (CPI) data for the third quarter has significantly influenced expectations regarding the Reserve Bank of Australia's (RBA) next move in November. The CPI rose by 1.2% in the quarter, surpassing the forecast of 1.1% and marking an increase from the previous quarter's growth of 0.8%. The year-on-year increase to 5.4%, against an expected 5.3%, indicates a persistent inflationary trend, primarily driven by rising fuel costs, which saw a 7.2% hike.
The market is now pricing in a 65% chance of a 25 basis points hike to 4.35% on November 7, a significant increase from the 35% chance estimated before the CPI release.
Governor Michele Bullock's emphasized the central bank's readiness to act against stubborn inflation. Governor Bullock's hawkish stance indicates a shift towards more aggressive monetary policy measures compared to her predecessor (commenced as Governor on 18 September 2023). The RBA's focus remains on returning inflation to its target range, with a low tolerance for deviation from this path, as highlighted in the October meeting minutes.
Looking at the chart from a technical analysis perspective, we see a significant strengthening of the Australian dollar following the CPI publication and more hawkish statements from the RBA. For the past two days, AUDUSD has been contained in the ascending channel, and currently, the lower line of this limit is being tested after a weakening of the gains following the CPI release. However, this pattern and weakness of AUDUSD has already twice resulted in break below the line with a subsequent decline to the level of 0.63. If we see a breach of the lower limit of the movement this time as well, we can expect a similar reaction.
