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The Australian dollar rose after Australia's monthly inflation indicator proved surprisingly strong.
Australia's monthly measure of inflation rose to 3.0% year-on-year in August, which was stronger than the expected 2.9% and a step higher than the previous month's reading of 2.8%.
The reading lowers the odds of further Reserve Bank of Australia (RBA) interest rate reductions, which shores up short-term bond yields and the Aussie Dollar.
"AUD/USD jumped by around 30pips following the stronger than expected Australian CPI indicator for August," says Kristina Clifton, FX strategist at Commonwealth Bank of Australia.
Inflation sub-measures that the RBA would be particularly focused on also printed on the hot side: The monthly CPI indicator excluding volatile items like fuel, food and holiday travel (core inflation) rose 3.4% in the 12 months to August, following a 3.2% rise in the 12 months to July.
Annual trimmed mean inflation, which this month excluded the annual rise in Electricity prices, alongside other large price rises and falls, was 2.6% to August, down from 2.7% to July.
The Australian dollar advanced a third of a per cent on the day against the U.S. dollar, with AUD/USD now quoting at 0.6620.
The pound to Australian dollar fell two-thirds of a per cent to 2.0366 and looks at risk of breaking below the key 200-day exponential moving average, which would signal a major trend-change for the pair. Those with outgoing AUD payments should consider the merits of securing current rates to protect against any notable deterioration in the exchange rate.
Against the euro, the Aussie is 0.60% higher as it pushes EUR/AUD down to 1.7796.
The Australian Dollar's advance is linked to the lower odds of a November rate cut at the RBA, with market implied pricing showing investors are now near even on the odds of a November cut, down from a sure-fire 70% yesterday.
Pushing against the inflation indicator and keeping alive the potential for a rate reduction is last week's disappointing labour market report that showed a surprise 5.4K loss in jobs in August.
"We continue to expect unemployment to tick higher against a backdrop of a modest short-term softening in participation," says Ryan Wells, an Economist at Westpac.
Westpac thinks the RBA is already alert to a deteriorating jobs market and will respond with a November rate cut, with a further 50bps of easing pencilled in for 2026.
Commonwealth Bank of Australia also thinks the RBA stands ready to cut in November; however, this is no longer a "done deal" says Harry Ottley, an economist at the bank. "Tension is building in the economic data flow in Australia."
That tension is found in a softening jobs market which a central bank tends to respond to via lowering interest rates versus stubborn above-target inflation, which warrants caution.
With the market now at 50/50 odds for a November rate cut, there will be heightened focus on next month's inflation and labour market reports, as these should seal the deal on the final decision.
Expect the Aussie dollar to be more sensitive than usual to domestic drivers.