Australian inflation is the latest ‘hot beat’ on the dancefloor

Australian flag
Matt Simpson financial analyst
By :  ,  Market Analyst

21102026aucpicalendar

Australian consumer prices rose at the annual pace of 7.3% y/y – above the 7% forecast and up from 6.1% in Q2. The RBA’s preferred measures of inflation also came in hotter than expected, with Trimmed mean rising 6.1% y/y (5.6% expected) and weighed mean at 5% y/y (4.8% expected). The newly released monthly y/y inflation print rose to 7.3% - which is a record high as the series only goes back to October 2018. Furthermore, core CPI has now beaten the median economic forecasts for five consecutive quarters. Basically, inflation is hot.

21102026auinflation

Looking into the monthly basket of inflation shows that the baulk of price increases food and non-alcohol beverages and housing (both at 3.2% y/y). This is a trend we’re seeing the world over, and I’m sure most would agree that inflation for these subsets are actually much higher for many. And with inflation running so sot, the question now is whether the ‘finely balanced’ debate between a 25bp or 50bp hike remains finely balanced at all.

 

From the RBA’s latest statement: “Medium-term inflation expectations remain well anchored, and it is important that this remains the case”.

21102026auinflationexpectations

The RBA seem to be hanging their hat on that fact that inflation expectations (or at least some measures of them) remain relatively low, and as Governor Lowe pointed out the RBA are basing their policy decisions on inflation expectations – which are lower than current levels of inflation. So perhaps the time to begin assuming a 50bp hike is when we see evidence that inflation expectations are turning higher. And as of the latest report, +3 month business expectation, +1 year consumer inflation expectations and the 10-year breakeven rate have seemingly moved lower. With that said, ING have already upped their forecast for a 50bp hike at their November meeting, which would take rates to 3.1%.

 

AUD/NZD daily chart:

21102026audnzdFX

AUD/NZD is trading back near yesterday’s high as it retraces against its decline from around 1.1500. Given Europe and the US is yet to react, the pair has the potential to continue higher over the near-term. But as I suspect the RBA will stick to a 25bp hike, and the market has the potential to figure this out, I’m now looking for areas of weakness to fade into – such as the 1.1190 low or the lower trendline.

 

 

 

 

How to trade with FOREX.com

Follow these easy steps to start trading with FOREX.com today:

  1. Open a Forex.com account, or log in if you’re already a customer.
  2. Search for the pair you want to trade in our award-winning platform.
  3. Choose your position and size, and your stop and limit levels.
  4. Place the trade.

  

Open an account in minutes

Experience award-winning platforms with fast and secure execution.

Web Trader platform

Our sophisticated web-based platform is packed with features.

Economic Calendar