AUD/USD surges to approach 0.6400 on stronger-than-anticipated Australian CPI of 7.3%

The AUD/USD pair has risen to 0.6400 after the Australian Bureau of Statistics announced the headline Consumer Price Index (CPI) for the third quarter of CY2022 at 7.3%, which is higher than the consensus estimate of 7.0% and the previous release of 6.1%. In addition, the quarterly inflation rate has arrived in line with the previous reading of 1.8% and has exceeded expectations of 1.5%.

This may compel the Reserve Bank of Australia (RBA) to declare a larger rate increase in the next monetary policy. At its monetary policy meeting in October, the RBA increased the Official Cash Rate (OCR) by 25 basis points (bps) to 2.6%. In October, RBA Governor Philip Lowe reduced the pace of rate hikes after the central bank had anticipated a 50 basis point rate hike spell earlier. Now, a larger-than-anticipated rate hike will force the RBA to return to a 50 basis point rate hike cycle.

On Tuesday, the Aussie bulls demonstrated a sharp increase and defended the pessimism induced by China's President Jinping. The unusual third term of XI Jinping's leadership in China dampened investor enthusiasm for Chinese stocks and other related assets. The antipodean was penalised for being China's most important trading partner because Jinping's ideology-driven policies are detrimental to China's economic prospects.

In the meantime, the US dollar index (DXY) is exhibiting a retracement and has above the 111.00 threshold. The risk-on profile has taken a hit as S&P500 futures have experienced a precipitous decline following a three-day buying spree. This could be a correction in the US 500-stock index following a stronger surge.