Hot inflation data pushes Australian Dollar higher as RBA rate hike bets increase

• September’s annual CPI inflation in Australia climbed to 4.3%, surpassing forecasts and the RBA’s 2–3% target range.
• The stronger-than-forecast inflation reading prompted traders to raise the probability of a November RBA rate increase to 78%.
• While warning that inflation was still far too high, RBA Governor Bullock stopped short of providing firm guidance on policy action.

Australia’s Consumer Price Index (CPI) report lends support to the Australian Dollar (AUD), helping AUD/JPY advance for a fourth consecutive day. The cross trades near 111.30 in Wednesday’s Asian session.

At 4.3% year-on-year in September, Australian CPI inflation exceeded both August’s 4.0% reading and the market consensus of 4.2%. Monthly price growth also quickened, reaching 0.8% against the previous increase of 0.4% and expectations of 0.7%. The Trimmed Mean CPI, an important gauge of underlying inflation, recorded a monthly rise of 0.3% and an annual increase of 3.7%.

With inflation moving further above the Reserve Bank of Australia’s (RBA) 2–3% target range, expectations of an interest rate increase at its 3 November meeting strengthened markedly. Traders put the probability of a November rise at 78% after the release, compared with 70% beforehand. Although RBA Governor Bullock stressed that inflation remained far too high and aggregate demand was still exceeding supply, she gave no explicit indication of the board’s forthcoming decision.

Rising crude oil prices are weighing on the Japanese Yen (JPY) against its major counterparts, as renewed cost pressures affect economies heavily reliant on energy imports. The oil market gained as global financial markets followed the continuing election count in Israel, where the outcome could alter the direction of the Middle East conflict.

With counting still under way, exit polls indicate a close race between Prime Minister Benjamin Netanyahu and opposition leader Gadi Eisenkot, with neither bloc securing a clear majority. The early results nevertheless suggest waning support for Netanyahu despite the stalemate. A dominant figure in Israeli politics, he has led the country through nearly three years of conflict.

Attention now turns to this week’s key central bank meetings. Interest rates are widely expected to remain unchanged at both the Federal Reserve and the Bank of Japan, as investors assess the prospects for possible policy changes in December.