Forex News: Australian Dollar Rises As Upbeat CPI Data Spurs

Australian Dollar Rises As Upbeat CPI Data Spurs RBA Rate Hike

(RTTNews) - The Australian dollar strengthened against other major currencies in the Asian session on Wednesday, as Australia's upbeat inflation fueled bets of an increase in Reserve Bank interest rates next week.

Data from the Australian Bureau of Statistics showed that Australia's consumer price inflation accelerated in December on housing and food prices. The consumer price index logged an annual growth of 3.8 percent in December, following November's 3.4 percent rise. Inflation was expected to rise marginally to 3.5 percent.

However, trimmed mean inflation slowed to 3.3 percent from 3.2 percent in November.

Driven by the surge in electricity prices, annual goods inflation rose slightly to 3.4 percent from 3.3 percent in November.

At the same time, services inflation accelerated to 4.1 percent from 3.6 percent a month ago. The main contributors were domestic holiday travel and accommodation and rents.

On a monthly basis, consumer prices rose at a pace of 1.0 percent in December after remaining flat in November.

At the December meeting, the Reserve Bank of Australia had retained the rate for the third straight month. At 3.6 percent, the key cash rate remains the lowest since March 2023.

JP Morgan's chief economist Ben Jarman said he expects RBA to hike its key rate by 25 basis points at its next week's meeting.

The bullish commodity markets also led to the upturn of AUD against its major peers.

Crude oil prices soared as U.S. naval forces have started building up near Iran, while Lebanese and Yemeni militias have pledged support to Iran, leading to a heightening of tensions. West Texas Intermediate crude for March delivery was up $1.61 or 2.66 percent at $62.24 per barrel.

Gold continued its record-printing rush, testing offers beyond $5,200 for the first time.

Global capital flows into Australian fixed income due to higher bond yields and a growing yield spread, also increased the demand of AUD currency.

Australian bonds currently provide the highest yields in the developed world, with 10-year yields at 4.82%, the highest since October 2023. The yield difference between the US and Australia has grown to its biggest level in three years.

Meanwhile, traders remain cautious ahead of the monetary policy announcement from the US Fed later in the day, though the Fed is expected to leave interest rates unchanged. They also assessed the increasing tariff uncertainty as well as the escalating U.S.-Iran conflict.

While the Fed is widely expected to leave interest rates unchanged, traders will pay close attention to the accompanying statement for clues about the outlook for rates.

A full-blown U.S-Iran war could deteriorate the global economy, which is already facing severe headwinds.

In the Asian trading today, the Australian dollar rose to nearly a 3-year high of 0.7023 against the U.S. dollar and a 3-year high of 0.9546 against the Canadian dollar, from yesterday's closing quotes of 0.7011 and 0.9519, respectively. If the aussie extends its uptrend, it is likely to find resistance around 0.71 against the greenback and 0.96 against the loonie.

Against the yen, the euro and the NZ dollar, the aussie advanced to 2-day highs of 107.15, 1.7113 and 1.1635 from Tuesday's closing quotes of 106.71, 1.7174 and 1.1598, respectively. The aussie may test resistance around 109.00 against the yen, 1.70 against the euro and 1.17 against the kiwi.

Looking ahead, U.S. MBA mortgage approvals data and U.S. EIA crude oil data are due to be released in the New York session.

At 10:00 am ET, the Bank of Canada will deliver its monetary policy decision. The central bank is expected to hold its interest rate at 2.25 percent.

Half -an-hour later, the BOC Governor Tiff Macklem will participate in a press conference following the interest rate announcement, at the Bank of Canada in Ottawa.

At 2:00 pm ET, the U.S. Federal Open Market Committee's (FOMC) will announce its interest rate decision. The U.S. Fed is expected to hold its interest rate at 3.75 percent.

Half-an-hour later, the U.S. Fed Chair Jerome Powell will participate in a news conference which is anticipated to establish expectations for what the Fed will do next.

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