Australian dollar rises on higher inflation

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Australian dollar rises on higher inflation

The Australian dollar has started the new trading week with strong gains. In the European session, AUD/USD is trading at 0.6509, up 0.64% on the day. The Aussie is coming off a fifth consecutive losing week and plunged 4.8% in October.

Australia's Melbourne Institute Inflation Gauge rose 0.3% in October, up from 0.1% in September and above the market estimate of 0.2%. This was the highest reading since July and the timing is significant as the Reserve Bank of Australia meets on Nov. 5.

RBA expected to hold rates

The RBA is widely expected to maintain the cash rate at 4.35% for an eight straight time, as policymakers look to extend the "higher for longer" rate policy until inflation is sustainably within the RBA's target of 2%-3%. Headline inflation fell to 2.8% y/y in the third quarter 2024 but services inflation has been sticky and rose in the third quarter to 4.6% from 4.5% in the second quarter.

The markets don't expect the central bank to make an initial rate cut before next year, with April the most likely start date. The RBA's hawkish stance has put it out of sync with other major central banks, which have started trimming rates in response to falling inflation.

With little doubt that the RBA will hold rates, investors will be focusing on the Board's statement, which is expected to remain cautious. The RBA can point to a list of reasons not to cut rates just yet - high inflation, a strong labor market and geopolitical uncertainty. As well, the US election and makeup of Congress is a major uncertainty and a Trump win could trigger trade turmoil.

AUD/USD Technical

• AUD/USD is testing support at 0.6605 . Below, there is support at 0.6571


• There is resistance at 0.6651 and 0.6685

Source: Australian dollar rises on higher inflation