Australian dollar firms as inflation heats up and RBA weighs next moves
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Daily Currency Update
The Australian dollar is beginning the day on a slightly firmer footing against its U.S. counterpart, trading around 0.6537 at the time of writing. While the movement is modest, it reflects a broader theme that has been quietly supporting the currency over the past week: stronger-than-expected inflation data at home. Australia’s latest consumer price figures revealed that inflation has now risen for a fourth consecutive month. This steady upward drift places price growth back above the Reserve Bank of Australia’s (RBA) 2%–3% target band, a zone policymaker has long emphasised as essential for maintaining economic stability. The renewed heat in inflation has caught the attention of markets, not because it signals an immediate shift in monetary policy, but because it keeps the possibility of additional rate hikes firmly on the table. For now, most analysts still expect the RBA to hold the Official Cash Rate (OCR) steady at 3.6% when it meets in December. After an intense tightening cycle, the central bank has been looking for signs that previous rate increases are working their way through the economy. But the new inflation data complicates that picture. While a pause remains the base case, investors and economists alike acknowledge that persistent price pressures leave the door open for future tightening if conditions do not cool. RBA officials have struck a balanced tone in recent weeks. They note that the labour market—one of the key drivers of domestic inflation—is easing slightly from its peak. Job vacancies have come off their highs, and wage growth, while still solid, is showing early hints of stabilising. Even so, the overall employment picture remains robust. Unemployment is low by historical standards, and businesses continue to signal steady demand for workers. This underlying strength supports household incomes and spending, which in turn can make it harder for inflation to drift back down on its own. For currency markets, this backdrop creates a mix of caution and opportunity. On one hand, higher-than-expected inflation typically strengthens a currency by increasing the likelihood of higher interest rates. On the other, global factors—including the U.S. Federal Reserve’s policy path and shifting investor sentiment—can easily outweigh domestic developments in the short term. As the December meeting approaches, traders, businesses, and households will all be watching closely. Whether the RBA ultimately holds or hikes, the recent data has made one thing clear: Australia’s inflation story isn’t finished yet, and the Australian dollar is likely to continue responding to every twist in the narrative.Key Movers
The US dollar is trading in a relatively calm and steady fashion as markets increasingly price in the likelihood of an interest rate cut from the Federal Reserve. Investors appear confident that the central bank is preparing to shift toward a slightly more accommodative stance, especially as economic data continues to show signs of cooling. According to the CME FedWatch Tool, the probability of a 25-basis-point cut at the December policy meeting now sits at an impressive 87%, reflecting a strong consensus that monetary easing is just around the corner. This growing expectation has kept the US dollar from making any significant moves in either direction. When markets become highly confident about the Fed’s next steps, currency volatility often eases, and that is precisely the environment the dollar is experiencing now. Traders are largely waiting for fresh catalysts to confirm whether the Fed will indeed follow through with a rate reduction or if incoming data might shift sentiment once again. Next week’s U.S. economic calendar promises to be a busy one, offering a wealth of information that could influence market expectations. Among the key releases are the November readings for the ISM Manufacturing and Services PMIs—two widely watched indicators that provide insight into the health and momentum of the broader economy. The manufacturing sector, in particular, has been under pressure this year, so any improvement or deterioration in the PMI figures could sway views on how urgently the Fed may feel compelled to act. Industrial Production data will also be in focus, giving markets a clearer sense of how the nation’s factories, utilities, and mining sectors are performing. This dataset tends to be quite sensitive to shifts in business demand and global conditions, making it another piece of the puzzle for policymakers assessing the strength of economic activity. Meanwhile, labour market indicators will get a closer look as well. The ADP Employment Change report will provide an early gauge of private-sector hiring for November, and while it doesn’t always perfectly align with the official government jobs report, it often helps shape expectations. Additionally, the weekly Initial Jobless Claims figures for the period ending November 29 will shed more light on job stability and potential cooling in employment conditions. Overall, the U.S. dollar’s steady performance reflects a market in wait-and-see mode. With so many important data releases on the horizon and interest-rate expectations already skewed toward a cut, the coming week could bring the clarity investors are looking for. For now, the dollar remains range-bound, hovering as markets prepare for what could be a pivotal December for monetary policy.Expected Ranges
- AUD/USD: 0.6400 - 0.6600 ▲
- AUD/EUR: 0.5500 - 0.5700 ▲
- GBP/AUD: 2.0200 - 2.0400 ▼
- AUD/NZD: 1.1250 - 1.1450 ▼
- AUD/CAD: 0.9000 - 0.9200 ▲