AUD/USD Gains as Australian CPI Data Curbs RBA Dovish Policy Bets

Talking Points:

• Australian Dollar rallied after CPI data beat expectations
• 4Q CPI 1.7% (YoY) vs 1.6% estimate and 1.5% in 3Q
• News flow reduced RBA dovish policy speculation

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The Aussie surged against the US Dollar after Australian fourth quarter inflation data surpassed expectations. The headline year-over-year print was 1.7 percent, which was better than the 1.6 percent forecast and the 1.5 percent figure in the third quarter. The quarterly inflation gauge crossed the wires at 0.4 percent versus the 0.3 percent estimate. This was a slight down tick from the third quarter 0.5 percent (QoQ) reading.

Australian front-end bond yields rallied with its currency, indicating that the data reduced RBA dovish policy bets for the near-term. In the central bank’s December rate decision, it noted that the outlook for inflation may require the need for further accommodative policy. The news flow appears to have altered traders’ speculation of the timing of rate cut by the Reserve Bank of Australia.