Australian dollar hits 15-month top, inflation data a mixed bag

[SYDNEY] The Australian dollar hit 15-month highs on Wednesday as a mixed bag of inflation data kept alive the prospect of a near-term hike in interest rates, while helping the Aussie notch a 12-year peak against its counterpart in New Zealand.

Figures showed consumer prices were unchanged in November for a second straight month, while the annual pace slowed to 3.4 per cent from October’s alarmingly high 3.8 per cent reading.

However, a key measure of core inflation increased by 0.3 per cent from a month earlier and 3.2 per cent for the year, staying stubbornly above the Reserve Bank of Australia’s target band of 2 per cent to 3 per cent.

That left everything riding on the full report for the fourth quarter, due later this month, where many analysts assume a rise of 0.9 per cent or more in core inflation could push the RBA to raise rates at its February board meeting.

The RBA had already warned that a rise in the 3.6 per cent cash rate might be necessary if inflation did not cool as hoped.

“With little spare capacity left in the economy and the labour market still tight, there’s a strong case for the RBA to start tightening policy again before long,” said Marcel Thieliant, head of Asia-Pacific economics at Capital Economics.

“If Q4 CPI confirm that trimmed mean inflation overshot the bank’s forecast, we still think it will tighten policy as soon as next month.”

Markets imply a 35 per cent chance that the RBA would hike by a quarter point at its meeting on Feb 3 and a move to 3.85 per cent is almost fully priced in by May.

In contrast, futures are priced for at least 50 basis points of easing from the US Federal Reserve this year.

SEE ALSO

Australia CPI inflation flat in November, under forecasts

The diverging outlook helped the Aussie up to US$0.6748, its highest point since October 2024. The break of resistance at US$0.6727 opened the way to bull targets at US$0.6793 and US$0.6943.

Broad-based buying from momentum funds also lifted it to an 18-month peak on the Japanese yen at 105.52 and an eight-month top on the euro at 0.5764.

It reached a 12-year high on its New Zealand neighbour at NZ$1.1651, while the kiwi lagged behind on the greenback at US$0.5782.

In the bond market, three-year futures were flat at 95.800, while 10-year yields dipped 3 basis points to 4.747 per cent. REUTERS