Australia Q3 CPI inflation expected to fall back into RBA target range

• The Australian Monthly Consumer Price Index is foreseen at 2.3% in September. 
• Quarterly CPI inflation expected below 3%, but core figures are still seen as too high.
• The Reserve Bank of Australia will meet in early November to decide on monetary policy.
• The Australian Dollar could find some near-term demand on higher-than-anticipated CPI readings. 

Australia will publish fresh inflation-related figures on Wednesday, kick-starting a row of global first-tier releases that should grant volatility across the FX board. Ahead of the announcement, the Australian Dollar (AUD) fell to a nearly three-month low against the US Dollar (USD), with the latter benefiting from prevalent demand for safety. 

The Australian Bureau of Statistics (ABS) will publish two different inflation gauges: the quarterly Consumer Price Index (CPI) for the third quarter of 2024 and the September Monthly CPI, which measures annual price pressures over the past twelve months. The quarterly report includes the Trimmed Mean Consumer Price Index, the Reserve Bank of Australia's (RBA) favorite inflation gauge. 

The RBA will have a monetary policy meeting next week and the outcome will be announced on November 5. The Australian central bank has kept the Official Cash Rate (OCR) steady at 4.35% for roughly a year, and a rate cut remains out of sight.

What to expect from Australia's inflation rate numbers?

The ABS is expected to report that the Monthly CPI rose by 2.3% in the year to September, easing from the 2.7% posted in August. The quarterly CPI is foreseen to increase by 0.3% quarter-on-quarter (QoQ) and by 2.9% year-on-year (YoY) in the third quarter of the year. Finally, the central bank's preferred gauge, the RBA Trimmed Mean CPI, is expected to rise by 3.5% YoY in Q3, easing from the 3.9% advance posted in the previous quarter. 

Inflationary pressures in Australia are receding after a rough first quarter of 2024 and are now expected to fall into the RBA's target range of 2% to 3%. Nevertheless, Australian policymakers have repeated multiple times that inflation remains high and would not be sustainable within target for "another year or two." With that in mind, an interest rate cut before 2025 remains out of the picture.

Easing inflationary pressures, however, should boost the odds for a soon-to-come interest rate trim, particularly considering shrinking growth. The Australian economy has not fallen into recession but it is close to it. Only government spending has prevented the country from suffering a steeper setback. The latest Gross Domestic Product (GDP) showed the economy grew by 0.2% QoQ and by 1.0% YoY in the three months to June. 

In September, following the RBA's latest monetary policy meeting, Governor Michele Bullock noted that while inflation "has fallen substantially since the peak in 2022", it remains above the RBA's preferred range of 2% to 3%. Bullock highlighted that underlying inflation was higher at 3.9% over the year to the June quarter. The focus will then be on core CPI as it remains closer to 4% than the magical 3% top goal.

An uptick in price pressures will likely push the odds for an interest-rate cut further away. The hawkish tone of policymakers will reinforce this idea, resulting in a stronger AUD. However, its strength remains doubtful, given the global scenario that keeps pushing investors toward safe-haven assets. 

How could the Consumer Price Index report affect AUD/USD?

As previously noted, the RBA will meet next week and announce its decision on November 5. Market participants won't expect action, but policymakers will acknowledge inflation levels and hopefully hint where they are heading next. 

Generally speaking, higher CPI figures will be AUD bullish amid expectations for a persistently hawkish RBA. The opposite scenario is less likely: inflation may ease, but that won't grant policymakers shifting towards a more dovish stance. 

Heading into the CPI release, the AUD/USD pair trades below the 0.6600 mark, down for a third consecutive day. 

Valeria Bednarik, FXStreet Chief Analyst, says: "The AUD/USD pair is not done with its slump, and regardless of the AUD's reaction to the CPI, the risk is skewed to the downside. A recovery post-inflation data release could allow sellers to add shorts. From a technical perspective, the daily chart shows that AUD/USD is developing below all its moving averages. The 20 Simple Moving Average (SMA) heads south almost vertically and is about to cross below a directionless 100 SMA. The 200 SMA also stands flat, providing resistance at around 0.6630. Finally, technical indicators remain within negative levels, although with uneven bearish strength."

Bednarik adds: "The AUD/USD pair has an immediate support area at around 0.6550, where it posted daily highs and lows between May and July. A break below this region should favor a bearish extension towards the 0.6500 threshold, while once the latter gives up, sellers could target the 0.6400-0.6430 area. Near-term resistance lies at 0.6630, en route to the 0.6670 area. Further gains could result in a test of the 0.6710 area, yet sellers will likely take their chances around it."