Australian dollar rises for six consecutive days to reach a new high! Is inflation exceeding expectations and becoming a driving force for the increase?

The recent performance of the Australian dollar has been truly impressive. On October 29, the AUD/USD broke through the 0.6607 level, marking the sixth consecutive trading day of gains. Paradoxically, among the factors driving the AUD higher, there are even some “negative” signals such as unexpectedly strong inflation data.

Unexpectedly Strong Inflation Data Shifts Market Expectations

The Australian Bureau of Statistics released the Q3 CPI data at the end of October, defying market expectations. Quarterly, the CPI increased by 1.3%, and annually, it jumped from 2.1% to 3.2%, both surpassing forecasts. The revised average quarterly core CPI also reached 1.0%, exceeding the expected 0.8%.

This data release immediately triggered a chain reaction in the futures market. According to futures traders’ pricing, the probability of the Reserve Bank of Australia (RBA) cutting interest rates next week (November 4) plummeted from 40% before the CPI announcement to just 8%. Analysts generally believe that the strong inflation data significantly reduces the room for further easing by the central bank. RBA Governor Philip Lowe previously stated that an average CPI growth rate exceeding 0.9% would be considered a notable upside surprise—and with actual data at 1.0%, it undoubtedly laid the groundwork for holding rates steady in November.

Dual Support for AUD/USD

Why does inflation exceeding expectations actually boost the Australian dollar? The key lies in the divergence of global central bank policies. During the same period, the Federal Reserve was taking a different approach. On October 29, U.S. Eastern Time, the Fed announced a 25 bps rate cut to a range of 3.75%–4.00%, with expectations to end quantitative tightening (QT). The market has fully priced in the second rate cut of the year.

The “hawkish” stance of the RBA contrasts sharply with the Fed’s shift towards a “dovish” stance, and this policy divergence directly supports the AUD/USD exchange rate. On one side, the RBA has limited room to cut rates further; on the other, the dollar faces increasing downward pressure. The combined effect of these forces provides upward momentum for the AUD.

US-China Trade Détente Boosts AUD Outlook

In addition to policy divergence, geopolitical easing also plays a significant role. On October 31, the Asia-Pacific Economic Cooperation (APEC) leaders’ informal meeting will be held in South Korea, providing an opportunity for US and Chinese leaders to meet face-to-face. Recently, Trump has sent quite positive signals, and markets are even speculating that China might exchange rare earths and soybeans to gain tariff relief on fentanyl.

If the US and China can reach further agreements, global risk appetite will increase, and investor interest in risk assets like the AUD will rise accordingly, further supporting the AUD/USD upward trend.

Exchange Rate Outlook: Break 0.66 by Year-End, Target 0.68 Next Year

Oxford Economics Chief Economist Harry Murphy Cruise is optimistic about the AUD’s prospects. He forecasts that by the end of this year, the AUD/USD will reach 0.66, and by 2026, it will further rise to 0.68. This outlook considers factors such as the RBA maintaining relatively high interest rates, continued pressure on the US dollar, and easing US-China trade tensions.

Overall, the AUD still has short-term upside potential, but the medium- to long-term trend depends on whether inflation truly peaks and the stability of the international trade environment. Investors should closely monitor the RBA’s interest rate decision on November 4 and the actual outcomes of US-China talks during the APEC summit.