SYDNEY: The Australian dollar popped to a three-week peak on Wednesday after shockingly high reading on core inflation led markets to all but price out a rate cut next week, and ponder whether the entire easing cycle might be over.
The long-awaited report showed headline consumer prices jumped 1.3% in the third quarter, led by electricity, council rates and holiday costs.
The key trimmed mean measure of core inflation rose 1.0% in the quarter, eclipsing forecasts of a 0.8% increase and a body blow for the Reserve Bank of Australia which had been hoping for something nearer 0.6%.
That took annual core inflation back up to 3.0%, the very top of the RBA's 2% to 3% target range and the first acceleration since it peaked at 6.8% in late 2022.
"With inflation vastly overshooting the RBA's forecasts, the Bank won't cut interest rates at its November meeting and the chances that it won't loosen policy any further are rising," said Marcel Thieliant, head of Asia-Pacific economics at Capital Economics.
The Aussie firmed 0.2% to $0.6600, having already risen 0.4% overnight. A break of major resistance at $0.6628 would open the way to its September peak at $0.6706.
Policy makers have been warning of upside risks to inflation, particularly from building costs and market services.
Earlier this week, RBA Governor Michele Bullock had said an outcome of 0.9% for core inflation would be a "material miss", leading investors to lengthen the odds on a near-term rate cut.
Markets swung sharply to imply just an 8% probability the RBA will cut its 3.60% cash rate by a quarter point when it meets on November 4, down from 40% before the data.
A move in December was put at 28%, from 70% earlier, and a single cut was not fully priced until June next year.
Three-year bond futures slid 10 ticks to 96.440 on the news, while 10-year bond yields rose 4 basis points to 4.218%.
The New Zealand dollar was flat at $0.5779, after edging up 0.2% overnight. Resistance lies at $0.5806 and $0.5844, with support at $0.5750 and $0.5710.
Investors remain confident the Reserve Bank of New Zealand will cut its 2.5% rate again in November. Markets imply a 98% probability of a cut to 2.25%, and around a 40% chance of an eventual move to 2.0%. - Reuters
