In October, Australia’s trimmed mean Consumer Price Index (CPI) soared by 3.3% on the year. This increase was above the consensus expectation, which was for a 3.0% increase. This reading for the supercore trimmed mean CPI is at its highest level since last October. It comes in just below the prior record of 3.2% set back in September. The release of this data has resulted in extreme volatility for the Australian dollar, especially compared to the U.S. dollar.
Australia’s headline CPI came out strong, surging up to 3.8% YoY. This jump exceeded the predicted 3.6%, indicating a better-than-expected economic performance. The annual rate of the headline CPI hit a high not seen in 17 months, compared to 3.6% in September. Housing, food and non-alcoholic beverages, and recreation all played a role in pushing the headline CPI higher. These sectors experienced the largest increases, pushing the trend upward.
The October inflation figures blown that all out of the water. These were the first full monthly indicator since the Australian Bureau of Statistics transitioned from its traditional quarterly release. Analysts are considering these results as a solid sign of ongoing inflationary pressures in the economy.
The Aussie dollar staged a strong rally against its U.S. rival after the release of October inflation figures. Industry experts couldn’t help but get whiplash from the abruptly soaring inflation numbers. These figures stoked expectations that the Reserve Bank of Australia (RBA) will hold rates steady. This position sharply differs from the hawkish easing expectations that are currently priced into the U.S. Federal Reserve’s dot plot.
BBH FX analysts commented on the situation, stating, “AUD/USD rallies as Australia’s October inflation prints hotter than expected, reinforcing the RBA’s hold stance and contrasting with aggressive Fed easing expectations.” They expressed their continued optimism regarding the Australian dollar, noting that “the swaps curve is betting on RBA rate hikes over the next year, in sharp contrast to the nearly 100bps of easing priced for the Fed.”
Global markets are responding to economic signals in fascinating and unprecedented ways. Australia’s positive inflation data have put the land down under on a course diverging from the United States, impacting currency exchange rates and driving market sentiment.