RBA Divergence: Sticky Inflation Revives Rate Hike Bets, Supporting

While the Federal Reserve and ECB contemplate the timing of rate cuts, the Reserve Bank of Australia (RBA) finds itself in a divergent policy stance. The Australian Dollar (AUD) is gathering support as markets price in a roughly 33% probability of a rate hike in February, following stubborn inflation data.

Persistent Price Pressures

November's monthly CPI indicator came in at 3.4%, but the devil was in the details. Core inflation remains sticky above the RBAs 2-3% target band, driven by a 1.1% surge in housing costs and elevated rents. RBA Deputy Governor Andrew Hauser admitted inflation is “too high,” fueling speculation that the cash rate of 3.6% may not be restrictive enough.

Technical Outlook: AUD/USD

The pair maintains a constructive tone near 0.6750, bolstered by the yield differential narrative.

With the US Dollar facing its own political headwinds, the AUD offers a unique value proposition as one of the few G10 currencies backed by a central bank that may still have tightening work to do.