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Abstract: Driven by gasoline and rental prices, Australia's inflation rate in the September quarter exceeded expectations, and the core inflation rate also exceeded expectations, increasing the risk that the Reserve Bank of Australia (RBA)'s interest rate may need to be further raised.

Fundamentals

In the third quarter of Australia, CPI rose by 1.2% month-on-month, exceeding expectations by 1.1% month-on-month, and accelerating from the previous quarter's growth of 0.8%. It is worth noting that some of the most obvious price increases appear in automobile fuel, rent, new houses purchased by owner-occupiers, and electricity.

Inflation has slowed down in the past 12 months. In the third quarter, CPI increased by 6.0% to 5.4% year-on-year. However, this figure exceeded the expected growth of 5.3%. It is worth noting that this is the third consecutive quarter that the annual inflation rate has declined, from the high of 7.8% in the fourth quarter of 2022.

The adjusted average CPI excluding volatile items increased by 1.2% month-on-month, once again exceeding the expected 1.1% and 1.0% in the previous quarter. From the analysis of annualized data, the average growth rate of CPI after trimming decreased from 5.9% to 5.2%, exceeding the expected 5.1%.

Commenting on the latest data, Michelle Marquardt, head of ABS price statistics, stressed that "the prices of most goods and services continue to rise." However, she also pointed out some industries with falling prices, especially child care, vegetables, and domestic holiday travel and accommodation.

In addition, the CPI in September rose by 5.2% to 5.6% year-on-year, higher than the expected 5.4%. During this period, the prices of housing, food, and non-alcoholic beverages rose sharply.

Considering these trends, Marquardt said, "This is the second consecutive increase in the annual change rate, which is higher than 5.2% in August and 4.9% in July. Although the price increase in many industries is slowing down, automobile fuel has experienced a substantial annual increase in the past two months, which has been pushing up prices. "

Market observation: Driven by gasoline and rental prices, Australia's inflation rate in the September quarter exceeded expectations, and the core inflation rate also exceeded expectations, increasing the risk that the RBA's interest rate may need to be further raised. This indicates that the RBA may raise interest rates by another 25 basis points to 4.35%, as we believe that the potential inflation in the third quarter is strong enough to make the RBA feel uneasy and adopt the policy of raising interest rates at the upcoming meeting.

Michele Bullock, chairman of the RBA, emphasized the RBA's continuous commitment to stabilizing inflation and promoting employment growth in his speech yesterday. Although Bullock acknowledges the possibility of maintaining the current cash interest rate to achieve these goals, she does not shy away from emphasizing the potential challenges. She pointed out: "There is a risk that the inflation recovery target may be slower than the current forecast."

To cope with the potential inflationary pressure, Bullock assured the board of directors to remain vigilant. "If there is a major upward revision in the inflation outlook, the board of directors will not hesitate to further raise the cash interest rate," she said.

As the board prepared for the subsequent meeting, Bullock emphasized the importance of the upcoming data. She mentioned that "the board of directors will receive several pieces of information that are very important for this evaluation before the next meeting."

She elaborated on the procedures to be implemented and revealed: "This includes a comprehensive update of staff forecasts. We will reconsider the economic outlook based on the information received and will have the opportunity to explain our assessment in the media release and monetary policy statement after the November meeting. "

Technical Analysis

After Australia's CPI annual rate in the third quarter and the non-seasonally adjusted CPI annual rate in September were both higher than expected, the market increased the risk that the RBA may need to raise interest rates further. The AUD strengthened.

However, as expected, the AUDUSD suffered a quick upside rejection after testing the top of the recent range at the 0.6400 level, indicating that the market continues to be in a pullback mode.

Today's data suggests that the RBA must now act to make good on these statements. Despite inflation uncertainty, the RBA maintains a cautious stance and continues to wait and see; then, the AUD could be punished again.

According to technical indicators, the bulls have not yet been approved. The Relative Strength Index is having a hard time rising above the neutral threshold of 50, while the Stochastic Oscillator has moved lower, reflecting investors' continued skepticism as the price is still below the 50-period SMA of 0.6360.

Prices are likely to repeat October's pullback near the 50-cycle SMA and then continue in a downtrend.

If bears break the key support at 0.6285, the focus could shift to the psychological 0.6200 level last touched a year ago. Additional losses could stop within the 0.6100-0.6120 limit zone for March-April 2020.

Overall, the AUDUSD, despite its recent rally, quickly returned to the lower part of the range, suggesting that the bulls still lack buying confidence. It is recommended to go short at the highs.

Trading Recommendations

Trading direction: Short

Entry price: 0.6350

Target price: 0.6200

Stop loss: 0.6475

Deadline: 2023-11-08 23:55:00

Support: 0.6285, 0.6272, 0.6200, 0.6170

Resistance: 0.6338, 0.6365, 0.6398, 0.6452