Australian Dollar Hits 3-Week Top

The Australian dollar strengthened to above $0.70, hitting a five-week high after hotter-than-expected inflation data boosted expectations for a fifth interest rate hike this year. Annual inflation jumped to 4.3% in September from 4.0% in August, surpassing the 4.2% forecast and reaching its highest level since March. The pickup pushed inflation further above the RBA’s 2–3% target range, boosting bets on a hike at the November 3 meeting. Monthly CPI rose 0.8%, the biggest increase in six months, also exceeding expectations of 0.7%. The data followed remarks from RBA Governor Michele Bullock earlier on Wednesday, when she warned that upside risks to inflation were materializing and price pressures would likely exceed the central bank’s August forecast. She also cautioned that prolonged deviations from the target could entrench inflation expectations and influence price and wage setting. Traders raised the probability of a November hike to 78%, up from 70% before the inflation report.

The Australian dollar was little changed around $0.70, staying near four-week highs as investors braced for the upcoming inflation figures that could boost expectations for another interest rate hike. The third-quarter CPI report is due Wednesday, with underlying inflation expected to rise by a sharp 1.0% quarter-on-quarter, keeping the annual rate at 3.6%. That would leave inflation well above the Reserve Bank of Australia’s 2%–3% target range and could bolster the case for a fifth rate hike this year. RBA Governor Michele Bullock and other senior officials are also scheduled to appear before lawmakers as the data is released, putting them under pressure to respond to the latest inflation figures and their implications for the policy outlook. Markets are currently pricing in a 66% chance of a 25-basis-point RBA rate hike to 4.85% at its November 3 meeting, with the move widely expected to mark the peak of the current tightening cycle.

The Australian dollar held above $0.70, trading near four-week highs as hawkish Reserve Bank of Australia (RBA) signals reinforced expectations of another interest rate hike in November. In a television interview, RBA Assistant Governor Sarah Hunter said the central bank had not yet done enough to bring inflation under control. She added that higher oil prices linked to the US-Iran war are becoming embedded in some supply chains, with more of that effect expected. Her remarks reinforced expectations of a restrictive monetary stance following four rate hikes earlier this year, keeping markets focused on the November 3 policy meeting. Last week, Deputy Governor Andrew Hauser also warned the inflation outlook is materially worse than the central bank assessed in August. Attention now turns to Wednesday’s Q3 inflation report, which could strengthen or temper expectations for further tightening, after August CPI was still above the RBA's 2-3% target range.