AUD: Flying high supported by the CPI - BBH

Research Team at BBH, notes that the Australian dollar leads the majors higher, helped by a slightly firmer than expected Q3 CPI, which dashes any lingering ideas that the central bank could cut rates again. 

Key Quotes

“The Australian dollar is bumping up against its nemesis around $0.7700 that has been an effective for several months even though it has been frayed on occasion.  We expect it to largely remain intact. 

The headline CPI rose 0.7% on the quarter up from 0.4% and more than 0.5% expected.  The year-over-year rates are 1.3%, up from 1.0%.   There was not the same improvement in the trimmed mean and weighted median measures, and for good reason.  There were a couple significant outliers.  Fruits prices were up 19.5%.  Electricity was up 5.4%.  The central bank has indicated that inflation is not the key presently.  Provided that growth remains firm and labor market holds up, there is no reason to mechanically cut interest rates. 

Australia's CPI is suggestive of something else as well.  Tradable goods prices were up 0.7%, while non-tradable goods prices were up 1.7%.  If we can generalize from this, countries in which exports plus imports are a smaller percentage of GDP may experience more inflation pressures.”