RBA Hike Bets Re-ignited as Australian Core Inflation Hotter Than Forecast

The Australian Dollar (AUD) found renewed demand on Wednesday after domestic inflation data surprised to the upside, shattering the market's complacency regarding the Reserve Bank of Australia's (RBA) policy trajectory.

Sticky Inflation Persists

Data released by the Australian Bureau of Statistics (ABS) highlights entrenched price pressures:

• Trimmed Mean CPI rose 3.4% year-on-year, beating forecasts of 3.3%.
• This marks a significant overshoot of the central bank's 2-3% target band.
• Unadjusted monthly CPI for December surged 1.0% (vs. 0.7% expected).

Policy Pivot Required?

The data challenges the global disinflation narrative. While peers like the Federal Reserve are contemplating rate cuts, the RBA may be forced into the opposite corner regarding its cash rate.

Technicals & Reaction

• Swaps traders repriced the yield curve, assigning higher probability to an RBA hike in the first half of 2026.
• Widening yield differential between the RBA and the Fed suggests fundamental support for AUD/USD on dips.