The Australian dollar jumped on Wednesday after a surprisingly high reading for inflation stoked speculation about a further hike in interest rates and slugged bond futures.
The Aussie climbed 0.7% to $0.6398 AUD=D3 , clearing chart resistance at $0.6395. The next target is $0.6445, while support is down at the recent 11-month trough of $0.6286.
The kiwi dollar edged up in its wake to $0.5867 NZD=D3 , after topping out at $0.5872 the previous session. Support lies at its recent low of $0.5809.
The violent reaction followed data showing Australian consumer prices jumped 1.2% in the third quarter, topping market forecast and an acceleration from 0.8% the previous quarter.
Alarmingly, core inflation also increased by 1.2% as cost pressures were broad-based in the quarter with everything from rents, to communication, health and finance on the rise.
That will be unwelcome news to the Reserve Bank of Australia (RBA) which recently warned that inflation might be proving more stubborn than hoped.
Just this week, RBA Governor Michele Bullock said the bank would not hesitate to raise its 4.1% cash rate if there were a "material" upward revision to the inflation outlook.
Rate futures responded by lifting the probability of a hike at the RBA's Nov. 7 meeting to 63%, from 35% before the data.
0#RBAWATCH The data were enough to see economists at ANZ abandon their steady outlook for rates and tip a hike.
"Given the hawkish rhetoric from the RBA over the past two weeks and an uncomfortably high Q3 CPI outcome, we now expect the RBA to increase the cash rate by 25bp in November," said Adam Boyton, head of Australian economics at ANZ.
Beyond the November meeting we expect the RBA to return to an extended pause," he added. "Any easing remains a very long way off."
Any hike would put the RBA in the unusual position of being one of the very few central banks in the developed world still tightening policy. Markets are wagering both the U.S. Federal Reserve and the European Central Bank are done with hiking.
That divergence hammered three-year bond futures YTTc1 , which slid 14 ticks to 95.6900 and lows not seen since mid-2011.
"All told, we think the RBA will dial up its hawkishness in response to today's CPI and hike rates by 25 basis points in November," said Abhijit Surya, an economist at Capital Economics.
"That said, with survey data pointing to a renewed easing of price pressures in the months ahead, we suspect the next hike will be the last in the tightening cycle."
