Australian Dollar: Yield advantage set to strengthen on inflation data – BBH

Australia’s September and Q3 Consumer Price Index (CPI) readings are expected to remain above the Reserve Bank of Australia’s year-end forecasts, according to Brown Brothers Harriman’s (BBH) Elias Haddad. Such an outcome would reinforce recent warnings of a deterioration in the inflation outlook, bolstering the case for a further 25bps cash rate increase to 4.85% in November and widening the Australian Dollar’s (AUD) yield advantage.

CPI expected to strengthen case for further RBA rate rises

"Headline CPI is expected to rise to 4.2% y/y vs. 4.0% in August, while trimmed mean CPI is projected to hold at 3.6% y/y for the fourth month and second straight quarter."

"These readings would leave inflation above the RBA’s year-end forecasts of 3.6% for headline and 3.3% for trimmed mean. That would back Deputy Governor Andrew Hauser’s warning last week that the inflation outlook is “materially worse” than assessed in August."

"Firmer inflation would also strengthen the case for a back-to-back 25bps RBA cash rate hike to 4.85% at the next November 3 meeting (70% priced in) and widen AUD’s yield advantage."

"AUD outperformed on a hawkish shift in RBA rate expectations."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)