In September, the Reserve Bank of Australia left interest rates unchanged but hinted that it wanted to cut them further. Although it was prepared for inflation to rise slightly again over the coming months, the central bank did not appear particularly concerned. This may have changed with this morning's inflation figures, Commerzbank's FX analyst Volkmar Baur notes.

AUD is likely to weaken accordingly

"At 1.3% compared to the previous quarter, inflation in Q3 rose at its fastest pace since early 2023, bringing the annual rate to 3.2% and thus above the upper end of the central bank's target range. The less closely watched monthly rate also rose by 0.3% in September, which, annualized, is also above the target range and indicates that momentum is moving somewhat more strongly in the wrong direction than previously assumed."

"Until now, we had assumed that the central bank would look through the rise in inflation. However, today's surprise has caused us to doubt this, and we now expect interest rates to remain unchanged at 3.6% next week."

"Meanwhile, the Australian dollar will be more dependent on the central bank's rhetoric in the coming week. In view of the inflation trend, we would prefer a more cautious approach, which could well support the AUD somewhat. However, if the RBA continues to leave the door open for interest rate cuts, the currency is likely to weaken accordingly."