AUD Surges, Australian CPI Heats Up, Fueling Speculation of a More Hawkish RBA
The Australian dollar (AUD) emerged as the winner among major currencies, strengthening by around 0.7% and holding above 0.7100 at the end of the Asian session on Wednesday. This strengthening was fueled by rising expectations that the Reserve Bank of Australia (RBA) could maintain a tighter stance following higher-than-expected inflation data.
The Australian Bureau of Statistics reported that the January CPI rose 0.4% month-on-month (MoM), sharply higher than the 0.1% recorded in December. The core inflation measure, the Trimmed Mean CPI, also rose 0.3% MoM—faster than the previous 0.2%—signaling that price pressures have not yet fully subsided.
On an annual basis, the Trimmed Mean CPI grew 3.4% (YoY), slightly above forecasts and the previous reading of 3.3%. Meanwhile, headline inflation remained at 3.8%, despite market expectations for a decline to 3.7%. This combination of data reinforces the narrative that inflation remains "sticky," opening up room for the RBA to remain hawkish.
At its policy meeting earlier this month, the RBA maintained the option of further tightening, despite raising rates 25 bps to 3.85%, citing the risk of inflation strengthening again. RBA Governor Michele Bullock emphasized that "the pulse of inflation is too strong" and the central bank does not want inflation to spiral out of control again—a message that has become even more relevant following the latest CPI release.
Externally, the US dollar (USD) weakened following US President Donald Trump's first State of the Union address to a joint session of Congress. Trump praised his administration's tariffs as a driver of economic recovery, while criticizing the Supreme Court for rulings inconsistent with his policies—adding another layer of policy uncertainty.
At the same time, the US Dollar Index (DXY) fell around 0.13% to 97.75. This weakening USD also provides additional room for the AUD to advance, strengthening the combination of domestic (Australian inflation) and global (USD sentiment) catalysts. (alg)
Source: Newsmaker.id
