Australia will release the first complete Monthly Consumer Price Index (CPI) on Wednesday, using the October 2025 reference month, and it is expected to show inflation rose 3.6% year over year, slightly above the previous reading of 3.5%.
The Australian Bureau of Statistics (ABS) announced the transition from quarterly to monthly data back in July, noting that “a complete, internationally comparable Monthly CPI as Australia’s primary measure of headline inflation will provide better information for monetary and fiscal policy decisions that have a direct impact on all Australians.”
The figure will be published two weeks ahead of the Reserve Bank of Australia (RBA) monetary policy meeting, scheduled for December 8-9. The RBA maintained the Official Cash Rate (OCR) at 3.6% following the November meeting, amid policymakers noting that inflation has increased back above their 2–3% target range, where they expect it to stay for a while. Officials also noted that the unemployment rate has risen slightly, but the job market is still healthy and is expected to remain so.
Ahead of the CPI release, the Australian Dollar (AUD) trades around 0.6450 against the US Dollar (USD).
What to expect from Australia’s inflation rate numbers?
As previously noted, the ABS is forecast to report that the monthly CPI rose by 3.6% in the year to October, matching the September estimate.
That’s well above the RBA’s target of keeping inflation between 2% and 3%. Given that policymakers already anticipate inflation will be above 3% for much of next year before declining to the middle of the target range by late 2027, the figure should have a limited impact on the AUD/USD. If something, it will confirm what market players already believe: that the RBA will not cut the OCR. In fact, speculative interest suggests there are rising odds for a rate hike unless the labour market weakens meaningfully in the upcoming months.
Bets against an interest rate cut rose 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. Also, annual inflation jumped to 3.2% from 2.1% in Q2, amid a spike in electricity costs. Food and energy prices also climbed, with food inflation remaining particularly sticky.
Signs of a strong labor market are exacerbating the scenario: The latest ABS employment report showed that the country added 42.2K new jobs in October, wildly exceeding expectations of 20K and much better than the 12.8K gained in September. At the same time, the Unemployment Rate decreased to 4.3%, below expectations of 4.4% and the 4.5% posted in the previous month. Finally, the participation rate held near record highs at 67%.
Low unemployment rates, strong employment growth, and high participation rates, coupled with inflation well above the RBA’s comfort zone, sustain the central bank’s hawkish stance and push the odds of additional rate cuts in the foreseeable future further away.
Meanwhile, market participants are slowly resuming bets on an upcoming United States (US) Federal Reserve (Fed) interest rate cut in December. The Fed trimmed interest rates by 25 basis points (bps) at its October meeting, but clouded hopes for a similar move in December amid government shutdown uncertainty. As the federal government reopened and US economic data slowly returned to traders’ desks, the odds of a 25 bps cut in December are rising. The US Dollar (USD) strengthened following the Fed’s October announcement, but the run seems to have lost steam.
How could the Consumer Price Index report affect AUD/USD?
As said, the anticipated inflation data should confirm the RBA’s hawkish stance and hence, result in a firmer AUD. This, combined with a slowly weakening USD amid rising bets for a Fed rate cut in December, should result in a bullish AUD/USD. A higher-than-anticipated inflation would be more worrisome and trigger a strong AUD/USD rally, at least in the near term.
If the data comes in softer than expected, yet still above 3%, the scenario should remain the same. However, in the wild case that annual inflation results below 3%, market players will rush to bet on an RBA interest rate cut, and could see AUD/USD plummet. This late situation, however, seems unlikely.
As previously mentioned, the AUD/USD pair hovers around 0.6450 ahead of the CPI release, trading not far above a fresh three-month low of 0.6421. The pair fell to such a low due to persistent USD strength following the Fed’s October monetary policy announcement.
Valeria Bednarik, FXStreet Chief Analyst, notes: “From a technical point of view, the AUD/USD pair has decelerated its slide, but the risk remains skewed to the downside. It trades higher since bottoming near 0.6420 on Friday, yet gains remain modest, with the upside capped by sellers aligned ahead of the 0.6500 threshold. The pair could reach that level with the anticipated readings, and run beyond it on a higher-than-expected outcome, with the next relevant resistance levels at 0.6530 and 0.6570.”
Bednarik adds: “The technical configuration, however, favors a slide, particularly if the pair remains capped by the aforementioned 0.6500 mark. Softer-than-anticipated readings aligning with the technical frame could see the pair retest the aforementioned monthly low at 0.6421, with additional declines targeting the 0.6390 area.”
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
Economic Indicator
Consumer Price Index (YoY)
The Consumer Price Index (CPI), released by the Australian Bureau of Statistics on a monthly basis, measures the changes in the price of a comprehensive basket of goods and services acquired by household consumers. The indicator is the primary measure of headline inflation after a new methodology was applied to transition from quarterly to monthly readings, applying to data from April 2024 onwards. The YoY reading compares prices in the reference month to the same month a year earlier. A high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.