Robust CPI Data Strengthens Australian Dollar, According to ING Analysts

Australian Dollar Climbs as Inflation Surprises to the Upside

The Australian dollar (AUD) experienced a surge following the release of unexpectedly high inflation data. Core inflation measurements stayed above the 4% mark, with the annual headline inflation rate decelerating to 3.6%. The Consumer Price Index (CPI) for the first quarter registered a 3.5% increase in March, surpassing the forecasted 3.4%.

Post-CPI data, Australia’s two-year swap rate jumped around 15 basis points, reaching a peak of 4.51% since November 2023. Adjustments in the market’s monetary policy expectations are evident as the Overnight Index Swap (OIS) curve now suggests a diminished probability of a rate cut by year-end, with just 8 basis points of easing anticipated for the December session.

Francesco Pesole, an analyst at ING, commented on Wednesday that although the prospect of an additional rate hike remains, the recent inflation figures are likely not substantial enough to necessitate a policy shift. “The Reserve Bank of Australia (RBA) might reach its inflation targets without further rate increases. However, we anticipate more careful communication regarding dovish policy adjustments in response to upcoming inflation fluctuations,” stated Pesole.

The positive economic indicators have bolstered the Australian dollar, pushing it beyond the 0.6500 threshold. Despite its susceptibility to changes in market mood, the AUD’s prospects are supported by delayed policy easing expectations and its performance in a stable risk environment.

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