Australian dollar shrugs as CPI jumps

The Australian dollar is trading quietly on Wednesday. AUD/USD is at 0.6904, up 0.14%.

Australian CPI climbs to 7.3%

Australian inflation pushed higher in November, rising to 7.3% following a 6.9% gain in October. This matched the forecast. The trimmed mean rate, a key gauge of core inflation, rose to 5.6% in November, up from 5.4% a month earlier and its highest level since 2018. The drivers behind the increase were higher jet fuel prices as well as accommodation prices. The drop in inflation in October (6.9%, down from 7.3% prior) had raised hopes that inflation might have peaked, but the rise in the November release has dampened such hopes. Retail sales for November jumped 1.4%, buoyed by Black Friday sales. This was much higher than the forecast of 0.6% and the October read of 0.4%. Consumer spending remains strong despite the double-whammy of rising interest rates and high inflation.

What will be the RBA’s take on this data? The trimmed mean rate indicates that the rise in inflation is broad-based, a reminder that the RBA has more work to do as it tackles high inflation. The strong retail sales data shows that the economy can still bear further hikes, and the markets have priced in a 25-basis point increase at the February 7^th meeting.

The RBA rate policy is data-dependent, which means that the quarterly CPI release on January 25th could determine what decision the central bank takes at the meeting. The minutes of the December meeting indicated that the RBA considered three options at that meeting – a 25 bp hike, a 50-bp hike and a pause. In the end, RBA members opted for the 25-bp increase. I would expect the RBA to show similar flexibility at the February meeting.

Fed Chair Powell finds himself under constant scrutiny, not just for his comments but also for what he doesn’t say. Powell participated on a panel at a symposium of the Swedish central bank on Tuesday. The topic was central bank independence, and Powell did not touch upon the economy or monetary policy. The markets took this as a dovish sign and the US dollar pared gains as a result.

.

AUD/USD Technical

• 0.6931 remains a weak resistance line, followed by 0.7044
• 0.6817 and 0.6747 are providing support

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.