AUD rises as rate-cut bets disappear – Commerzbank

Australia’s inflation surprised to the upside in October, erasing expectations of further RBA rate cuts and giving the Australian Dollar (AUD) a small lift, though persistently high price pressures may weigh on the currency in the months ahead, Commerzbank’s FX analyst Tatha Ghose notes.

RBA trimmed mean jump kills cut expectations

“In Australia, the chances of a further cut in the key interest rate were completely priced out this morning, which is why the Aussie dollar was able to gain slightly. This was due to the inflation figures for October, which were published this morning and once again surprised on the upside.”

“Contrary to expectations of a stable development, the overall rate rose from 3.6% to 3.8%, moving even further away from the Reserve Bank of Australia’s target range of between 2% and 3%. More seriously, however, the RBA’s preferred ‘trimmed mean’ rate, which is adjusted for upward and downward outliers, also rose from 3.0% to 3.3%.”

“The RBA’s forecasts did not anticipate an increase in the trimmed-mean rate to above 3%. The inflation figures therefore confirm our assumption that the RBA’s interest rate cycle is over for the time being. Persistently high inflation is likely to weigh on real interest rates and thus on the AUD in the coming months.”