Australian inflation surprise

Alexander Kuptsikevich FxPro

Inflation data continues to be the main driver of the markets. This morning the currency market focused on a surprise out of Australia, where the annual CPI growth rate for the fourth quarter accelerated from 7.3% to 7.8%, against expectations of only 7.5%. Inflation hit its highest level since 1990. Moreover, a 1.9% rise in prices in the final three months of last year shows that inflationary pressures have stayed the same.

The significant outperformance of the data compared to expectations triggered a wave of Aussie buying. AUDUSD climbed to 0.7120 by the start of the European session as traders reassessed the outlook for policy tightening, suggesting a higher interest rate.

From a broader perspective, the Australian data and today's stronger-than-expected numbers from New Zealand and earlier from Japan should remind the market that inflation is sticky and there is a long fight ahead. This is true now that employment levels in the developed world have been near their highest for decades. If high inflation is a global phenomenon, it has the potential to regain some of the traction the dollar has lost since October.

Author

Alexander Kuptsikevich

FxPro

Alexander Kuptsikevich, a senior market analyst at FxPro, has been with the company since its foundation. From time to time, he gives commentaries on radio and television. He publishes in major economic and socio-political media.

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