RBA rate hike bets surge as Australian inflation heats up

Australia's Q3 inflation report has strengthened the case for another RBA rate increase, with trimmed mean inflation rising 1%, in line with market expectations but two-tenths above the bank's forecast. Annual underlying inflation now stands at 3.66%, with the six-month annualised pace running at 3.7%, both miles above the RBA's 2.5% target midpoint.

But what's happening beneath the headline figures?

Our analysis shows inflation pressures remain widespread, while comparisons between market goods and services, tradables and non-tradables, and discretionary and non-discretionary spending reveal where price pressures are proving most persistent.

Interest rate traders have responded by pricing an 85% chance of a 25 basis point RBA hike in November, with the OIS curve implying further tightening into 2027.

As discussed in the video below, despite the shift in rate expectations, AUD/USD has struggled to maintain its post-inflation rally with the price action turning cautious ahead of the Fed's policy decision later in the session.

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