Australian Dollar strengthens as hot inflation data boosts RBA rate hike bets

AUD/JPY extends its gains for the fourth successive day, trading around 111.30 during Asian hours on Wednesday. The currency cross gains support as the Australian Dollar (AUD) receives support following the release of the domestic Consumer Price Index (CPI) report.

Australia’s CPI inflation rose to 4.3% year-over-year in September, up from 4.0% in August and slightly above the market forecast of 4.2%. On a monthly basis, the CPI climbed 0.8%, accelerating from the previous 0.4% increase and topping expectations of 0.7%. Meanwhile, the Trimmed Mean CPI, a key measure of underlying inflation, increased 0.3% month-over-month and advanced 3.7% annually.

This surge pushed inflation further beyond the Reserve Bank of Australia’s (RBA) 2–3% target band, significantly boosting expectations for an interest rate hike at the RBA's November 3 meeting. In response to the data, traders increased the probability of a November rate hike to 78%, up from 70% prior to the report. RBA Governor Bullock noted that inflation remains far too high and emphasized that overall demand continues to outpace supply, though she offered no explicit guidance regarding the upcoming board decision.

The Japanese Yen (JPY) faces headwinds against its major peers due to rising crude oil prices, which place renewed cost pressures on major energy-importing economies. Oil prices rose as global financial markets tracked ongoing election results in Israel that could shift the course of the Middle East conflict.

Exit polls suggest a tightly contested election, showing Prime Minister Benjamin Netanyahu tied with opposition leader Gadi Eisenkot, leaving neither bloc with a clear majority as counting continues. Despite the deadlock, the preliminary results point to diminishing support for Netanyahu, who has been a dominant force in Israeli politics while leading the country through nearly three years of conflict.

Looking ahead, market participants are keeping a close watch on key central bank meetings scheduled for this week. Both the Federal Reserve and the Bank of Japan are widely anticipated to hold interest rates steady, while investors evaluate the likelihood of potential policy adjustments in December.