The Australian Consumer Price Index (CPI) rose 3.8% year-on-year in October, following a 3.5% increase in the previous reading, the latest data published by the Australian Bureau of Statistics (ABS) showed on Wednesday.
The market consensus was for a growth of 3.6% in the mentioned period.
The average CPI (RBA) for October rose 0.3% and 3.3% on a monthly and yearly basis, respectively. The monthly CPI came in at 0% in October, compared to the previous reading of 1.3%.
AUD/USD reacts to Australian CPI data
The Australian Dollar (AUD) is attracting some buyers after inflation data from Australia. AUD/USD is adding 0.21% on the day to trade at 0.6480 at press time.
The price of the Australian dollar this week
The table below shows the percentage change in the Australian Dollar (AUD) against the major currencies listed this week. The Australian dollar was the strongest against the Canadian dollar.
| US dollars | euro | GBP | JPY | Canadian | Australian dollar | New Zealand dollar | Swiss franc | |
|---|---|---|---|---|---|---|---|---|
| US dollars | -0.43% | -0.46% | -0.17% | 0.00% | -0.30% | -0.21% | -0.07% | |
| euro | 0.43% | -0.04% | 0.27% | 0.43% | 0.11% | 0.22% | 0.35% | |
| GBP | 0.46% | 0.04% | 0.29% | 0.47% | 0.15% | 0.26% | 0.39% | |
| JPY | 0.17% | -0.27% | -0.29% | 0.17% | -0.20% | -0.17% | 0.10% | |
| Canadian | -0.00% | -0.43% | -0.47% | -0.17% | -0.32% | -0.21% | -0.08% | |
| Australian dollar | 0.30% | -0.11% | -0.15% | 0.20% | 0.32% | 0.11% | 0.26% | |
| New Zealand dollar | 0.21% | -0.22% | -0.26% | 0.17% | 0.21% | -0.11% | 0.14% | |
| Swiss franc | 0.07% | -0.35% | -0.39% | -0.10% | 0.08% | -0.26% | -0.14% |
The heat map shows the percentage changes in major currencies versus each other. The base currency is chosen from the left column, while the counter currency is chosen from the top row. For example, if you select the Australian dollar from the left column and move along the horizontal line to the US dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
This section below was published at 20:00 GMT on Wednesday as a lead-in to the Australian CPI inflation report
- Australian monthly CPI is expected to reach 3.6% y/y in October.
- The Reserve Bank of Australia is scheduled to meet again this year from December 8-9.
- The Australian dollar is holding near recent multi-month lows against the US dollar.
Australia will release its first full monthly consumer price index (CPI) on Wednesday, using the reference month of October 2025, and is expected to show inflation rising 3.6% year-on-year, slightly higher than the previous reading of 3.5%.
The Australian Bureau of Statistics (ABS) announced the move from quarterly to monthly data in July, noting that “the full, internationally comparable monthly CPI as Australia’s main measure of headline inflation will provide better information for monetary and fiscal policy decisions that have a direct impact on all Australians.”
This figure will be published two weeks before the Reserve Bank of Australia (RBA) monetary policy meeting, scheduled for December 8-9. The Reserve Bank of Australia maintained its policy rate at 3.6% after the November meeting, with policymakers signaling that inflation has risen back above the 2-3% target range, where they expect it to remain for some time. Officials also noted that the unemployment rate has risen slightly, but the labor market remains healthy and is expected to remain so.
Ahead of the CPI release, the Australian Dollar (AUD) is trading around 0.6450 against the US Dollar (USD).
What do we expect from Australia’s inflation figures?
As previously reported, the Australian Bureau of Statistics is expected to report that the monthly CPI rose 3.6% in the year to October, which is in line with September estimates.
This is well above the Reserve Bank of Australia’s target of keeping inflation between 2% and 3%. Given that policymakers already expect inflation to be above 3% for most of next year before falling to the middle of the target range by late 2027, this number should have a limited impact on the AUD/USD. If anything, it would confirm what market players already believe: that the RBA will not cut the OCR rate. In fact, speculative interest suggests there is an increasing likelihood of interest rates rising unless the labor market weakens meaningfully in the coming months.
Bets against interest rate cuts have risen with the release of the latest inflation figures. Quarterly inflation in the three months to September rose by 1.3%, the fastest quarterly increase since early 2023. Annual inflation also jumped to 3.2% from 2.1% in the second quarter, amid a rise in electricity costs. Food and energy prices also rose, with food inflation remaining particularly challenging.
Signs of a strong labor market are worsening the scenario: The latest employment report from the ABS showed that the country added 42.2 thousand new jobs in October, exceeding expectations of 20 thousand and much better than the 12.8 thousand jobs in September. Meanwhile, the unemployment rate fell to 4.3%, below expectations of 4.4% and 4.5% recorded in the previous month. Finally, the participation rate maintained its record levels at 67%.
Low unemployment rates, strong employment growth, and high participation rates, coupled with inflation well above the RBA’s comfort zone, support the central bank’s hawkish stance and push away the prospects of additional interest rate cuts in the foreseeable future.
Meanwhile, market participants are slowly resuming bets on the next interest rate cut by the US Federal Reserve in December. The Fed cut interest rates by 25 basis points at its October meeting, but dampened hopes for a similar move in December amid uncertainty over a government shutdown. As the federal government reopens and US economic data slowly returns to traders’ desks, the odds of a 25 basis point cut in December are rising. The US dollar strengthened after the Fed’s announcement in October, but the trend appears to have lost steam.
How could the CPI report affect AUD/USD?
As we said, the expected inflation data would confirm the RBA’s hawkish stance and, therefore, lead to a stronger Australian dollar. This, combined with a slow weakening of the US dollar amid rising bets on a Fed rate cut in December, should send the AUD/USD pair higher. Higher than expected inflation would be more worrying and lead to a strong rally in the AUD/USD, at least in the near term.
If the data is weaker than expected, but still above 3%, the scenario should remain the same. However, in a wild case where the annual inflation rate is below 3%, market players will rush to bet on a rate cut from the RBA, and could see a decline in the AUD/USD pair. But this late situation seems unlikely.
As mentioned earlier, AUD/USD is hovering around the 0.6450 area ahead of the CPI release, trading near a new three-month low at 0.6421. The pair fell to this low level due to the continued strength of the dollar after the Federal Reserve’s monetary policy announcement in October.
“From a technical point of view, the AUD/USD pair has slowed its decline, but the risk is still skewed towards the downside,” says Valeria Bednarik, FXStreet Senior Analyst. “It has been trading higher since bottoming near 0.6420 on Friday, yet gains remain modest, with the uptrend capped by sellers before the 0.6500 threshold. The pair could reach this level with expected readings, and surpass it in the longer term with a higher result.” It is expected, with the next relevant resistance levels at 0.6530 and 0.6570.
Bednarik adds: “However, the technical configuration favors a decline, especially if the pair remains capped by the aforementioned 0.6500 mark. Weaker than expected readings consistent with the technical framework could lead to the pair retesting the mentioned monthly low at 0.6421, with additional declines targeting the 0.6390 area.”
Frequently asked questions about the Australian dollar
One of the most important factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country, another major driver is the price of its largest export, iron ore. The health of the Chinese economy, its largest trading partner, is one factor, in addition to Australia’s inflation, its growth rate and its trade balance. Market sentiment – whether investors are snapping up riskier assets (risk on) or looking for safe havens (risk off) – is also a factor, with risk appetite positive for the Australian dollar.
The Reserve Bank of Australia (RBA) influences the Australian dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This affects the level of interest rates in the economy as a whole. The RBA’s main objective is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the Australian dollar, and relatively low interest rates. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former being AUD negative and the latter AUD positive.
China is Australia’s largest trading partner, so the health of the Chinese economy has a major impact on the value of the Australian Dollar (AUD). When the Chinese economy is performing well, it buys more raw materials, goods and services from Australia, which raises demand for the Australian dollar, raising its value. The opposite is the case when the Chinese economy does not grow as quickly as expected. Therefore, positive or negative surprises in Chinese growth data often have a direct impact on the Australian dollar and its crosses.
Iron ore is Australia’s largest export, representing $118 billion annually according to 2021 data, and China is its main destination. Therefore, the price of iron ore could be a driver of the Australian dollar. In general, if the price of iron ore rises, the Australian dollar also rises, as overall demand for the currency increases. The opposite is the case if the price of iron ore falls. Higher iron ore prices also tend to increase the likelihood of a positive trade balance for Australia, which is also positive for the Australian dollar.
The balance of trade, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can affect the value of the Australian dollar. If Australia produces highly sought-after exports, its currency will gain value from the excess demand generated by foreign buyers seeking to buy its exports in exchange for what it spends to buy imports. Therefore, a positive net trade balance strengthens the Australian dollar, with the opposite effect if the trade balance is negative.
