Australian dollar outperforms ahead of all-important inflation update

Daily Currency Update

The Australian dollar strengthened through trade on Tuesday, pushing back above and holding onto moves above US$0.6350. As other major currencies set about giving back yesterday’s gains the AUD outperformed following commentary from new RBA Governor Michelle Bullock. Speaking last night, the new Chair highlighted the interconnected nature of full employment and inflation objectives. While there was little groundbreaking shift in RBA policy Bullock did confirm that “the board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation”. With Q3 inflation figures scheduled today, Bullock's comments served as a reminder of the importance of the inflation narrative in shaping RBA policy. Market pricing for a November rate hike moved higher, lifting the AUD to intraday highs just shy of US$.6380. While the AUD has slipped back to open just above US$0.6350 the prospect of at least one more rate hike before March 2024 should help add a floor underneath the AUD.
Our attentions today are squarely affixed to Q3 inflation numbers, a key release ahead of the Melbourne Cup Day rate announcement. The consensus is for year-on-year inflation to move lower but remain well above the RBA’s 2-3% target. With services inflation proving sticky, any signal price pressures are becoming entrenched could prove a catalyst to drive rate expectations higher and propel the AUD toward US$0.64.