Australian inflation surprised to the upside in October, erasing expectations of further interest rate cuts by the Reserve Bank of Australia, giving the Australian dollar a slight boost, although persistent high price pressures may weigh on the currency in the coming months, Commerzbank FX analyst Tatha Ghose noted.
The Reserve Bank of Australia trimmed the forecast-killing mean jump
“In Australia, the chances of a further cut in the key interest rate were fully priced in this morning, which is why the Australian dollar was able to rise slightly. This was due to the inflation numbers for October, which were published this morning and once again surprised to the upside.”
“Contrary to expectations of stable development, the overall rate rose from 3.6% to 3.8%, moving further away from the RBA’s target range of 2% to 3%. However, more alarmingly, the RBA’s preferred ‘stripped mean’ rate, which is adjusted for up and down extremes, also rose from 3.0% to 3.3%.”
“The RBA forecast did not forecast an increase in the average interest rate beyond 3%. The inflation figures therefore confirm our assumption that the RBA’s interest rate cycle has ended for the time being. Persistently high inflation is likely to weigh on real interest rates and therefore the Australian dollar in the coming months.”
