Australia will release the first complete Monthly Consumer Price Index (CPI) on Wednesday, using the October 2025 reference month, and it is expected to show inflation rose 3.6% year over year, slightly above the previous reading of 3.5%.
The Australian Bureau of Statistics (ABS) announced the transition from quarterly to monthly data back in July, noting that “a complete, internationally comparable Monthly CPI as Australia’s primary measure of headline inflation will provide better information for monetary and fiscal policy decisions that have a direct impact on all Australians.”
The figure will be published two weeks ahead of the Reserve Bank of Australia (RBA) monetary policy meeting, scheduled for December 8-9. The RBA maintained the Official Cash Rate (OCR) at 3.6% following the November meeting, amid policymakers noting that inflation has increased back above their 2–3% target range, where they expect it to stay for a while. Officials also noted that the unemployment rate has risen slightly, but the job market is still healthy and is expected to remain so.
Ahead of the CPI release, the Australian Dollar (AUD) trades around 0.6450 against the US Dollar (USD).
What to expect from Australia’s inflation rate numbers?
As previously noted, the ABS is forecast to report that the monthly CPI rose by 3.6% in the year to October, matching the September estimate.
That’s well above the RBA’s target of keeping inflation between 2% and 3%. Given that policymakers already anticipate inflation will be above 3% for much of next year before declining to the middle of the target range by late 2027, the figure should have a limited impact on the AUD/USD. If something, it will confirm what market players already believe: that the RBA will not cut the OCR. In fact, speculative interest suggests there are rising odds for a rate hike unless the labour market weakens meaningfully in the upcoming months.
Bets against an interest rate cut rose with the release of the latest inflation figures. Quarterly inflation in the three months to September rose by 1.3%, the fastest quarterly increase since early 2023. Also, annual inflation jumped to 3.2% from 2.1% in Q2, amid a spike in electricity costs. Food and energy prices also climbed, with food inflation remaining particularly sticky.
Signs of a strong labor market are exacerbating the scenario: The latest ABS employment report showed that the country added 42.2K new jobs in October, wildly exceeding expectations of 20K and much better than the 12.8K gained in September. At the same time, the Unemployment Rate decreased to 4.3%, below expectations of 4.4% and the 4.5% posted in the previous month. Finally, the participation rate held near record highs at 67%.
Low unemployment rates, strong employment growth, and high participation rates, coupled with inflation well above the RBA’s comfort zone, sustain the central bank’s hawkish stance and push the odds of additional rate cuts in the foreseeable future further away.
Meanwhile, market participants are slowly resuming bets on an upcoming United States (US) Federal Reserve (Fed) interest rate cut in December. The Fed trimmed interest rates by 25 basis points (bps) at its October meeting, but clouded hopes for a similar move in December amid government shutdown uncertainty. As the federal government reopened and US economic data slowly returned to traders’ desks, the odds of a 25 bps cut in December are rising. The US Dollar (USD) strengthened following the Fed’s October announcement, but the run seems to have lost steam.
How could the Consumer Price Index report affect AUD/USD?
As said, the anticipated inflation data should confirm the RBA’s hawkish stance and hence, result in a firmer AUD. This, combined with a slowly weakening USD amid rising bets for a Fed rate cut in December, should result in a bullish AUD/USD. A higher-than-anticipated inflation would be more worrisome and trigger a strong AUD/USD rally, at least in the near term.
If the data comes in softer than expected, yet still above 3%, the scenario should remain the same. However, in the wild case that annual inflation results below 3%, market players will rush to bet on an RBA interest rate cut, and could see AUD/USD plummet. This late situation, however, seems unlikely.
As previously mentioned, the AUD/USD pair hovers around 0.6450 ahead of the CPI release, trading not far above a fresh three-month low of 0.6421. The pair fell to such a low due to persistent USD strength following the Fed’s October monetary policy announcement.
Valeria Bednarik, FXStreet Chief Analyst, notes: “From a technical point of view, the AUD/USD pair has decelerated its slide, but the risk remains skewed to the downside. It trades higher since bottoming near 0.6420 on Friday, yet gains remain modest, with the upside capped by sellers aligned ahead of the 0.6500 threshold. The pair could reach that level with the anticipated readings, and run beyond it on a higher-than-expected outcome, with the next relevant resistance levels at 0.6530 and 0.6570.”
Bednarik adds: “The technical configuration, however, favors a slide, particularly if the pair remains capped by the aforementioned 0.6500 mark. Softer-than-anticipated readings aligning with the technical frame could see the pair retest the aforementioned monthly low at 0.6421, with additional declines targeting the 0.6390 area.”
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Economic Indicator
RBA Interest Rate Decision
The Reserve Bank of Australia (RBA) announces its interest rate decision at the end of its eight scheduled meetings per year. If the RBA is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Australian Dollar (AUD). Likewise, if the RBA has a dovish view on the Australian economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for AUD.