The Australian Bureau of Statistics (ABS) will publish the Consumer Price Index (CPI) data for November at 00:30 GMT on Wednesday.
This is the second complete monthly CPI report, as the government continues to transition from the quarterly CPI to the monthly gauge as the primary measure of headline inflation.
“However, the RBA has said it still prefers the quarterly prints for a better gauge of inflation trends, given the new data can be volatile,” according to Reuters.
The inflation report is eagerly awaited to gauge the next interest rate move by the Reserve Bank of Australia (RBA), which could significantly impact the performance of the Australian Dollar (AUD).
What to expect from Australia’s inflation rate numbers?
Economists forecast Australia’s CPI to increase by 3.7% annually in November, after rising by 3.8% in October – the highest since June 2024 and above median forecasts of 3.6%. The RBA’s inflation target is in the range of 2%-3%.
In October, the CPI showed no growth on a monthly basis, while the Trimmed Mean CPI rose at an annual rate of 3.3% in the same period.
Improved business conditions, robust economic growth and hotter-than-expected inflation prompted the central bank to keep the Official Cash Rate (OCR) steady at 3.6% following its December monetary policy meeting.
Speaking at the post-policy meeting press conference in December, RBA Governor Michele Bullock noted that “inflation and jobs data will be important for board meeting in February,” adding that she “would not put timing on any future move, (it) will be meeting by meeting.”
Since then, the Australian labor market has shown signs of slowing, with the number of employed people dropping by 21,300 in November and Full-time Employment falling by 56,500 even as the Unemployment Rate remained at 4.3% in the reported month.
Against this backdrop, the Australian CPI data holds the key to determining whether the RBA could opt for a rate hike next month. “RBA cash rate futures imply nearly 50 basis points (bps) of rate increase in 2026,” according to analysts at BBH.
How could the Consumer Price Index report affect AUD/USD?
Heading into the Australian CPI inflation showdown, the AUD is sitting at its highest level in 15 months against the US Dollar (USD) near 0.6750. Expectations of monetary policy divergence between the RBA and the US Federal Reserve (Fed) remain an important catalyst underpinning the AUD/USD pair.
A surprise pick-up in Australia’s inflation could lift the odds for an interest rate hike by the RBA as early as next month, pushing AUD/USD further toward the 0.6800 level. On the other hand, a bigger-than-expected drop in the inflation figure could alleviate the pressure on the RBA for an imminent shift to tightening, which will likely fuel a correction in the Aussie.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, highlights key technical levels for trading AUD/USD following the CPI release.
“AUD/USD is holding its recent bullish momentum, with the 14-day Relative Strength Index (RSI) approaching the overbought territory, suggesting that there could be more room for upside before a pullback kicks in.”
“The Aussie pair could see a fresh leg north toward 0.6800 on acceptance above the 0.6750 psychological mark. The next relevant resistance levels are aligned at the October 3, 2024, high of 0.6888 and the September 2024 high of 0.6942. Conversely, any retracements could test the initial support at the 21-day Simple Moving Average (SMA) at 0.6671, below which a deeper correction will open toward the 0.6600 mark,” Dhwani adds.
Economic Indicator
Trimmed Mean CPI (YoY)
The Trimmed Mean Consumer Price Index (CPI), released by the Australian Bureau of Statistics on a monthly basis, is a measure of underlying inflation. The Trimmed mean is calculated using a weighted average of percentage change from the middle 70% of the distribution of all CPI components in order to smooth the data from the more-volatile items. The YoY reading compares prices in the reference month to the same month a year earlier. Generally, a high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.
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.