AUD Outlook: Traders Brace for Sticky CPI to Fuel RBA Hawkishness

Foreign exchange markets are turning their attention to the Australian Consumer Price Index (CPI) due Wednesday, which is expected to show inflation accelerating. Consensus forecasts point to a 3.6% YoY rise in December, up from 3.4%, with monthly CPI anticipated to jump to 0.7%.

RBA Dilemma

Sticky inflation poses a significant challenge for the Reserve Bank of Australia (RBA). While global peers like the Fed and ECB are discussing pivots or cuts, rising domestic price pressures may force the RBA to maintain or even tighten its restrictive policy stance.

• Bullish Case for AUD: A reading above 3.6% would cement “higher for longer” rate expectations, providing support for the Aussie Dollar, especially against the beleaguered US Dollar.
• Bearish Risks: If the data surprises to the downside, the AUD could rapidly unwind its recent gains, as traders are currently positioned for a hawkish outcome.

The data comes at a time of extreme volatility in cross-pairs like AUD/JPY, where intervention fears are capping gains. A hot CPI print could see AUD outperform heavily against the Greenback while struggling to gain traction against the Yen.