Australian Inflation in Line - RBA Hike Likely Limited to 25bp

Last updated 10/28/2009 2:17 AM ET (GMT -5) 7 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Australian CPI printed hotter than expected at 1.0% versus 0.9% forecast while the trimmed mean data was in line at 0.8%. This was the third positive quarterly inflation reading in a row and the sharpest rise yet this year. Last quarter CPI rose 0.5%.

The news suggests that despite the appreciating Aussie price pressures are beginning to percolate in the Australian economy as demand continues to grow. However today's data was well within the range of forecasts and remains contained suggesting that the RBA is unlikely to raise rates by a more aggressive 50bp in November.

With a 25bp rate hike already priced in, the Aussie actually sold off on the news as risk aversion swept the Asian markets. After skyrocketing to a 2009 high of 9340 the Aussie has been selling off on profit taking and renewed concerns regarding the slowdown of global recovery. With RBA rate hike now most likely limited to 25bp the pair could drift lower to test the .9000 level if risk aversion flows continue to dominate trade for the rest of the week.

Comments (7)

FXDragon

October 28, 2009 at 03:18 AM ET

Hi Boris,
Theres a hypothesis that if inflation goes much higher in us, dollar could depreciate further. I think if fed raises rates to fight inflation, that could actually boost dollar. Considering europe facing deflation more seriously at the moment. What do you think?

Arturas

October 28, 2009 at 03:37 AM ET

Dollar would appreciate most against the yen if fed would decide to raise interest rates, because dollar is actually cheaper then yen right now and it drives currency traders crazy. Euro is mostly driven by the risk flows and commodities prices this year, so i think interest rate would be the secondary reason for the dollar to go up.But yes - it would boost it

bschlossberg

October 28, 2009 at 03:48 AM ET

I agree with Arturas but we would need to see better US data. So far its been very weak this week.

FXDragon

October 28, 2009 at 05:24 AM ET

Why would traders care dollar is cheaper than yen? They can make money up and down both ways. Im betting for a lower usdjpy forexample, i would lose if it goes up long term.

d@t

October 28, 2009 at 05:46 AM ET

I think the USD being "cheaper" than JPY refers to interest rates - the other way to make cash from fx trading

Arturas

October 28, 2009 at 06:38 AM ET

Interest rate differential is the main way how funds earn money, they don't speculate how traders are, that's why aussie and kiwi appreciated most this year - the highest interest rates

FxBeast09

October 28, 2009 at 07:06 PM ET

I agree that .25 seems likely, but it is still possible for the .5 increase. The argument is that the RBA only has begun it's hawkish talk over the last couple months and the 3.25% is just above the recent 49 year lows for the cash rate. The RBA is not worried about current inflation numbers, they're worried about 2010 and 2011. So if the CPI is already seeing a 1% increase this early and the goal is to keep inflation at 2-3% max, could be a decent argument for the .5 increase. The smarter move though is probably the .25 increase, then leave options open for later.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.