Aussie higher after CPI dips

The Australian dollar has extended its gains on Wednesday. AUD/USD is trading at 0.6723 in Europe, up 0.54%.

Australian inflation falls below 7%

Australia inflation surprised on the downside with a 6.9% gain (YoY) in October. This was down sharply from the 7.3% clip in September and beat the consensus of 7.4%. The burning question on everyone’s lips, is, of course, “has inflation finally peaked?” Before the champagne bottles come out, it’s worth noting that a new method was used to calculate October CPI – under the old method, CPI would have been 7.1%, a less dramatic decline. Core CPI ticked lower to 5.3%, down from 5.4%. Australia recently added monthly inflation reports to supplement the quarterly releases, and the monthly reports are more volatile and may not mark a changing trend. Investors and policy makers will have to wait for the next quarterly CPI release in January to get a better handle on which direction inflation is headed.

There was positive news from the construction sector, as Construction Work Done rebounded in Q3 with a strong gain of 2.2%, above the consensus of 1.5%. This follows a -3.8% read in Q2 and was the first gain since Q3 2021.

The markets will be paying close attention to Jerome Powell, who is expected to touch upon inflation and the labour market in a speech later today. The Fed has orchestrated an effective Fedspeak blitz, with Fed members presenting a hawkish outlook for rate policy, even though the Fed has signalled it will ease up on rates in December and hike by “only” 50 basis points. This year will set a record for Fed tightening, with 425 basis points if the December increase is 50 bp. With the battle against inflation far from over, the last thing the Fed wants to temper any market exuberance, as a higher stock market could drive more inflation.

AUD/USD technical

• AUD/USD continues to test resistance at 0.6707. The next resistance line is 0.6829.

• There is support at 0.6633 and 0.6511.