Australian dollar steadies as strong inflation data reshapes RBA outlook

Daily Currency Update

The Australian dollar (AUD) is currently trading at US$0.6571 against the US dollar (USD) at the time of writing, easing slightly after touching a weekly high of US$0.6617 on Wednesday. Despite the brief rally, the currency remains capped below the US$0.6630 resistance level, suggesting that traders are cautious following the release of stronger-than-expected inflation data and ahead of key geopolitical developments. Australia’s third-quarter inflation report surprised markets on the upside, reshaping expectations for the Reserve Bank of Australia’s (RBA) next policy move. The Consumer Price Index (CPI) rose 1.3% quarter-on-quarter in Q3, exceeding consensus forecasts, while annual inflation accelerated to 3.2%. Meanwhile, the monthly CPI jumped to 3.5% in September, reinforcing the view that price pressures remain persistent. These figures challenge earlier market speculation that the RBA might consider another interest rate cut in the near term to support growth. Instead, investors now see a higher likelihood that the central bank will maintain its current restrictive stance for longer, or potentially even signal readiness for additional tightening if inflation fails to moderate. The data underscores the difficulty of steering inflation back toward the RBA’s 2–3% target range amid resilient domestic demand and rising service-sector costs. Beyond domestic factors, the AUD's short-term trajectory will also hinge on broader global sentiment, particularly developments in China, Australia’s largest trading partner. Investor attention is turning toward US President Donald Trump’s Asia tour, which includes a high-profile meeting with Chinese President Xi Jinping on Thursday. Markets are watching closely for any progress in trade discussions or policy coordination between the world’s two largest economies. A breakthrough toward improving US–China relations would typically bolster risk appetite and lift commodity-linked currencies like the AUD, as it would signal stronger global trade prospects and support Australia’s export-driven economy. Analysts at OCBC Bank noted that a firmer Chinese renminbi (CNY) and improved global risk sentiment would be positive drivers for the Australian dollar in the near term. Nevertheless, the AUD/USD pair remains sensitive to movements in US Treasury yields and the US dollar index (DXY), which continue to benefit from expectations of a prolonged period of elevated US interest rates. If the Federal Reserve maintains its hawkish tone, the greenback could stay supported, limiting upside potential for the AUD. Overall, while robust inflation data has lent the AUD some resilience, the currency’s ability to sustain gains above 0.6630 will likely depend on whether upcoming geopolitical events and shifts in risk appetite reinforce or temper the market’s cautious optimism.