Commodity currencies face a busy 24 hours, with Australian Q3 CPI and the RBNZ interest rate decision arriving just 30 minutes apart, followed by the Bank of Canada and Federal Reserve. Australian inflation could reshape expectations for a November RBA hike, while forward guidance from the RBNZ and BoC could determine which commodity currency comes out on top. The Fed adds another layer of event risk for AUD/USD, NZD/USD and USD/CAD.
View related analysis:
- NZD/CAD Ponders Swing Low Ahead of BoC, RBNZ as Hike Bets Firm
- ECB Meeting Preview: EUR/USD Bears Face a Sentiment Test
- US Dollar Bulls Hold Firm, but Euro Warns of Squeeze Risk | COT Report
- Brent Crude Oil and Forex Technical Analysis | Oil Gaps Lower
- Australian Dollar Outlook: AUD/USD Screams Sentiment Extreme Into Fed, CPI
Australian CPI, RBNZ, BoC and Fed Set the Stage for FX Volatility
We have a busy 24 hours ahead for commodity currencies, with Australian Q3 CPI and an RBNZ interest rate decision arriving just 30 minutes apart, at 11:30am and midday Sydney time. The Bank of Canada follows at 12:45am Sydney on Thursday, with the Fed at 5am.
Australian CPI could increase already favoured odds of a November RBA hike, or pour cold water on them. This effectively makes the inflation report as significant as an RBA meeting. Meanwhile, both the RBNZ and BoC are expected to hike, putting the emphasis on forward guidance.
As the charts show, markets are pricing further tightening from the RBA, RBNZ and BoC, while the Fed's projected rate path points in a different direction. This divergence could create opportunities across commodity currencies as traders reassess relative interest rate expectations.
Hot Australian CPI alongside a hawkish RBNZ hike could leave AUD/NZD in a stalemate, although both AUD/USD and NZD/USD could benefit if the US dollar remains subdued. I also favour the prospect of NZD outperforming CAD if the BoC delivers a less hawkish message.
However, the Fed adds another layer of risk later in the session, potentially reinforcing or reversing earlier moves in AUD/USD, NZD/USD and USD/CAD.
Australian CPI Could Decide November RBA Hike Odds
RBA officials, including Bullock, Hauser and Hunter, are scheduled to appear before Senate Budget Estimates from 11:15am Sydney, adding another potential source of volatility just ahead of CPI.
With Andrew Hauser warning that the inflation outlook is materially worse, alongside Sarah Hunter's recent hawkish comments, the bar is high for a genuinely dovish inflation report.
There are three main questions traders want answered from Australia's Q3 inflation report:
- How strong is underlying inflation? Quarterly trimmed mean inflation is expected at 0.9–1.0%, above the RBA's implied August projection of 0.8%.
- How widespread are price pressures? Are services, housing and other underlying components accelerating alongside energy prices?
- Does inflation justify another hike despite a softer economy? Unemployment has risen to 4.7%, business confidence remains weak and household demand is under pressure.
Australian CPI Scenarios: What Traders Should Watch
Quarterly trimmed mean inflation is the main CPI figure to monitor.
- Below 0.8%: A meaningful dovish surprise that could weigh on AUD, particularly against NZD if the RBNZ delivers hawkish guidance.
- 0.8%: Broadly consistent with the RBA's earlier assumptions, but below market expectations. This could reduce November hike odds.
- 0.9%: In line with Westpac's forecast, but still above the RBA's implied August projection. The details of underlying inflation become critical.
- 1.0%: In line with CBA, NAB and ANZ forecasts. This would reinforce the case for a November hike, although weaker employment and business conditions remain counterarguments.
- 1.1% or higher: A clear upside surprise that could send November hike odds sharply higher and encourage markets to price more tightening into 2027.
AUD/USD Hints at Bullish Consolidation Above 200-day EMA
AUD/USD is consolidating just beneath its 50-day EMA after a solid rebound from 69 cents, while holding above its 200-day EMA. This could favour an eventual bullish breakout towards 0.7050 initially, followed by May's high around 0.7075.
Bulls could also seek dips towards the 200-day EMA near 0.6983, provided bearish momentum doesn't accelerate too sharply first.
The one-day implied volatility band is relatively narrow at around 58 pips from low to high. Are options traders a little complacent ahead of Australian CPI?
Source: ICE, TradingView
RBNZ Expected to Deliver a Hawkish 25bp Hike
The RBNZ is widely expected to raise its cash rate by 25bp to 3% on Wednesday, with a hike overwhelmingly priced in.
Although Q3 inflation eased to 3.7% y/y from 4.1%, below the RBNZ's 3.9% forecast, underlying pressures remain elevated. Inflation excluding food, household energy and vehicle fuels accelerated to 1.1% q/q. Rising oil prices and a weaker New Zealand dollar also threaten to push headline inflation higher in Q4.
With a hike largely priced in, attention turns to forward guidance. ASB expects rates to reach 3.5% by February, while Westpac forecasts a peak of 4% later in 2027.
I suspect the RBNZ could deliver a hawkish hike, keeping the door open to further tightening. The accompanying statement and press conference will be important for gauging the likelihood of another hike in December.
This could support NZD, particularly against CAD if the Bank of Canada delivers a less hawkish message.
NZD/USD Shooting Star Warns of a Pullback Ahead of RBNZ
Price action is similar on NZD/USD, although the New Zealand dollar remains well below its 200-day EMA. A shooting star candle on the daily chart warns of a potential pullback, although a break above its high would undermine the bearish signal.
Potential support resides around 0.5650, while the one-day implied volatility range spans around 90 pips. That's two-thirds of its one-week range of 135 pips, highlighting the potential for heightened volatility around the RBNZ decision.
Source: ICE, TradingView
Bank of Canada Expected to Hike Despite Weak Employment
The Bank of Canada is also expected to raise rates by 25bp on Wednesday, taking its policy rate to 2.50%, with markets pricing around an 80% probability of a hike.
The hawkish repricing follows Governor Tiff Macklem's warnings about persistent energy inflation and the risk of higher costs spreading throughout the economy. September CPI accelerated to 3.1% y/y, while rising inflation expectations have added to the case for pre-emptive tightening.
However, the decision is not without controversy. Inflation excluding petrol remains relatively subdued at 2.2%, while employment fell by 68k in September and unemployment rose to 6.5%.
With a hike largely priced in, CAD's reaction may depend more on forward guidance than the decision itself. The accompanying Monetary Policy Report and Macklem's press conference could prove particularly important.
A hawkish hike could support CAD, while a cautious outlook or unexpected hold could trigger a sharper reversal. But given the weak employment figures and subdued underlying inflation, I suspect the BoC may be less hawkish than the RBNZ, potentially favouring NZD/CAD upside.
USD/CAD Bulls Defend 1.4000 Ahead of BoC Decision
USD/CAD bulls are putting up a fight above 1.4000, having formed a doji around that level on Friday, an inverted hammer on Monday and bullish range expansion yesterday.
Once again, the 50-day EMA presents potential resistance nearby, which could encourage bears to target the 20-day EMA around 1.3950. The monthly pivot point at 1.4075 adds another layer of resistance over the near term, although a break above it could open the door to a stronger bullish recovery.
