Australian Dollar Mixed After CPI Fails to Lock In RBA Hike

Australia’s latest quarterly CPI report kept inflation uncomfortably high but not convincingly strong enough to lock in a February rate hike from the Reserve Bank of Australia. While trimmed mean inflation remains elevated, market pricing and price action suggest growing scepticism that the data materially shifts near-term policy expectations. As a result, the Australian dollar reaction has been muted after a strong pre-CPI rally.

CPI Report: Inflation Still Sticky, But Momentum Mixed

Headline inflation accelerated, driven largely by housing-related components, while underlying inflation measures eased only marginally. The trimmed mean CPI remains above the RBA’s target band, reinforcing the central bank’s concern that inflation pressures have not fully dissipated.

That said, the data lacked the decisive upside surprise needed to force the RBA’s hand. Inflation is proving persistent but not accelerating in a way that clearly demands immediate action. This keeps the February meeting firmly in play without guaranteeing a hike.

RBA Policy Outlook

The RBA has now held rates steady for four consecutive meetings, maintaining a cautious and data-dependent stance. While recent labour market strength and inflation persistence justify a hawkish bias, the central bank has shown a clear preference for restraint and

flexibility in recent years.

The most likely outcome remains a cautious hold paired with firm guidance. Expect the RBA to reiterate its meeting-by-meeting approach, keeping the option of a hike alive without committing to one prematurely. Importantly, markets appear unconvinced that today’s CPI alone is sufficient to shift policy decisively.

Australian Dollar Reaction

Any bullish impulse from the CPI report was largely absorbed by the strong rally that preceded it. Broad US dollar weakness, alongside a surge in precious metals, had already pushed the Aussie to multi-month highs, leaving limited room for follow-through.

Bond markets echoed this caution. Australia’s 3-year yield declined following the release, signalling reduced conviction around an imminent hike. This aligns with the Australian dollar’s mixed performance across major crosses, with several pairs stalling near resistance or showing signs of near-term fatigue.

AUD/USD has pulled back from the 0.70 handle, a natural pause given the speed of the prior advance. Elsewhere, AUD/CAD and AUD/GBP are showing early signs of exhaustion, while AUD/JPY remains supported but lacks momentum.

Bottom Line

Australia’s CPI report keeps the RBA alert but not committed. Inflation remains above target, yet the data does not decisively force a February hike. With markets already positioned for a hawkish tilt, the Australian dollar’s rally has stalled, leaving price action vulnerable to consolidation or modest pullback unless stronger confirmation emerges. For now, policy uncertainty persists, and the Aussie remains sensitive to shifts in yield expectations and broader US dollar dynamics.