RBA Cornered: Rate Hike Bets Surge as Inflation Misses Expectations

SYDNEY — The Australian Dollar (AUD) outperformed major peers today after hot inflation data shattered the Reserve Bank of Australia's (RBA) wait-and-see narrative, forcing the market to price in an imminent resumption of monetary tightening.

CPI Surprise

Data from the ABS revealed that the Trimmed Mean CPI rose 0.9% in the December quarter, exceeding the 0.8% forecast. The annualized rate climbed to 3.4%, moving further away from the RBA's 2-3% target band.

• Headline inflation jumped 1.0% month-on-month in December.

Institutional Pivot

The data triggered a hawkish recalibration regarding the RBA. ANZ, Westpac, CBA, and NAB now expect the cash rate to rise to 3.85% at the February 3 meeting.

• Markets are pricing in a 73% chance of a hike next week, up from 60% pre-release.

Technicals

• AUD/USD successfully defended the 0.6900 support level.
• Price action is eyeing a test of the psychological 0.7100 barrier.