BBH FX analysts report that the AUD/USD pair has rallied, climbing back above its 200-day moving average, primarily due to Australia’s October inflation figures exceeding expectations. This “hotter than expected” inflation reinforces the Reserve Bank of Australia’s (RBA) current “hold” stance on interest rates, sharply contrasting with aggressive Federal Reserve (Fed) easing expectations.
Key Inflation Highlights from Australia (October):
- Headline Consumer Price Index (CPI): Rose to a 17-month high of 3.8% year-on-year (consensus was 3.6%), up from 3.6% in September. This increase was driven by sectors such as housing, food and non-alcoholic beverages, and recreation and culture.
- Trimmed Mean CPI (Policy-Relevant): Unexpectedly increased to a one-year high of 3.3% year-on-year (consensus was 3.0%), up from 3.2% in September.
- RBA Projections: These figures are notably higher than the RBA’s own projections of 3.3% for headline and 3.2% for trimmed mean annual inflation by December.
- New Reporting Method: The October CPI marks the first full monthly report since the Australian Bureau of Statistics transitioned from quarterly reporting.
BBH’s Outlook:
BBH remains constructive on AUD/USD, noting the significant divergence in monetary policy expectations. The swaps curve indicates market bets on RBA rate hikes over the next year, a stark contrast to the nearly 100 basis points of easing priced in for the Fed during the same period.
