Australian Dollar at $0.7025 After Three-Week High as Inflation Risks Intensify

Key Facts

The Australian dollar held above 70 U.S. cents at $0.7025 on October 22, after reaching a three-week high the previous day, according to Reuters. The currency was in focus as Reserve Bank of Australia Deputy Governor Andrew Hauser warned of a deterioration in the inflation outlook, saying oil prices were now about a third higher than the bank had assumed in its August forecasts. The developments sharpen attention on the monetary policy path after the bank raised its cash rate target to 4.60% in September. EL7 closing data showed the Australian dollar-U.S. dollar pair ended October 21 at 0.70278, then closed October 22 at 0.70191. In broader markets, Reuters said gains by sterling and the Canadian, Australian and New Zealand dollars to multi-week highs pointed to some investors paring dollar bets, although moves were limited on Thursday.

Speaking on October 21, Hauser said inflation expectations were “materially worse” than the bank had expected in its August report, noting that oil prices were about a third above the previous assumption. The August baseline forecasts were based on market paths that assumed global oil prices would gradually decline from their then-current levels. The bank identified three inflation risks: the Middle East crisis, an artificial intelligence and technology boom, and domestic supply constraints. Hauser said the bank concluded by its September meeting that these three risks had “crystallised.” In its September 29 decision, the bank raised the cash rate target by 25 basis points to 4.60%, unanimously. The bank also said AI-related demand was pushing up global prices for technology goods, while companies faced cost pressures and were raising prices for goods and services, or considering doing so.

Available inflation data for August show the annual Consumer Price Index rate accelerated to 4.0% from 3.5% in July, while the trimmed mean remained at 3.6% in both months. Housing group prices rose 5.7% year on year through August, while transport group prices climbed 5.6%. These rates measure price changes in the housing and transport groups; they do not mean that the same percentage represents each group’s contribution to overall inflation. Since October 2025, the full monthly CPI has been Australia’s primary measure of headline inflation, with quarterly index tables included in every third monthly release. This puts the upcoming September reading at the top of the near-term data investors are watching ahead of the Reserve Bank of Australia meeting.

In the labor market, seasonally adjusted employment fell by 39,300 people, or 0.3%, to 14,782,700 in September, while the unemployment rate rose 0.1 percentage points to 4.7%. Trend data, however, recorded an employment increase of 15,700 people over the month, with unemployment steady at 4.6%. The Australian Bureau of Statistics recommends trend data for measuring underlying labor market behavior. The divergence between the estimates highlights the importance of distinguishing the monthly seasonally adjusted decline from the employment trend when assessing labor market conditions. Labor data are among the economic indicators investors are monitoring as markets weigh price pressures against activity.

Attention is turning to the U.S. Federal Open Market Committee meeting on October 27 and 28, ahead of the Australian September Consumer Price Index release on October 28 at 11:30 a.m. Australian Eastern Daylight Time. The Reserve Bank of Australia’s Monetary Policy Board will next meet on November 2 and 3. Reuters said investors had begun hedging ahead of a series of central bank meetings the following week, with interest rates expected to remain high in Japan, the United States and Europe. The agency added that dollar bets were based on expectations of continued U.S. economic strength, supported by the AI boom, reinforcing the case for rates to stay higher for longer. In Australia, Reuters reported that Hauser’s inflation warning and rising oil prices had prompted an increase in bets on a November rate hike.