Australian Dollar: Inflation data to bolster yield edge – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad highlights that Australia’s September and Q3 Consumer Price Index (CPI) are expected to stay above the Reserve Bank of Australia’s year-end forecasts. This would validate recent warnings that the inflation outlook has deteriorated and strengthen the case for another 25bps cash rate hike to 4.85% in November, widening the Australian Dollar’s (AUD) yield advantage.

CPI seen backing further RBA hikes

"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."