AUD/USD surges to a fresh three-week high as hotter Q3 inflation delays RBA cuts

AUD/USD surges to a fresh three-week high as hotter Q3 inflation delays RBA cuts

AUD/USD has surged to a three-week high of 0.6607 today, propelled by a hotter-than-expected third quarter (Q3) 2025 inflation report that has sidelined near-term Reserve Bank of Australia (RBA) rate cut expectations.

Today's report revealed headline consumer price index (CPI) inflation accelerating to 1.3% quarter-on-quarter (QoQ), lifting the annual rate to 3.2% year-on-year (YoY) from 2.1%, well above the RBA's 2% to 3% target midpoint.

The RBA's preferred trimmed mean measure, a key gauge of underlying pressures, climbed 1% QoQ (beating 0.8% estimates and the bank's August forecast of 0.6% QoQ), pushing its annual rate to 3% YoY from 2.7%. This is the first uptick since December 2022, placing it at the top of the RBA’s target band.

Key drivers include:

• Housing (2.5% QoQ): fuelled by a sharp 9% QoQ spike in electricity prices, reversing prior subsidies and adding significant upward pressure
• Recreation and culture (1.9% QoQ): broad-based gains in services and leisure spending
• Transport (1.2% QoQ): higher fuel and vehicle costs amid global energy volatility.

Hawkish RBA

Speaking in London earlier this week, RBA Governor Michele Bullock sounded hawkish, saying a 0.9% QoQ rise in trimmed mean inflation would be viewed as a 'material miss' versus the RBA’s August forecast of 0.6% QoQ.

The RBA Governor also described the labour market as 'a little tight' and said she did not want to 'leap at a single number' regarding the recent rise in unemployment.

Bullock's comments signal a preference to prioritise price stability ahead of labour market softening.

Market repricing: cuts pushed out

With today’s data showing a material miss, the Australian interest rate market repriced quickly. It now prices only about 2 basis points (bp) of easing for next week’s RBA Board meeting, and has pushed back expectations for the RBA’s next 25 bp cut from February 2026 until May 2026.

Whether this repricing turns out to be premature will depend on the October labour force report on 13 November.

A further rise in unemployment from September’s 4.5% would leave the RBA facing a difficult trade-off between inflation and labour market risks.

Yield dynamics

In the interim, expectations of an RBA cash rate on hold at 3.60% against the Federal Reserve (Fed) expected to cut rates by 25 bp tomorrow and again in December – taking its Fed funds rate to a range of 3.50% to 3.75% – all but negate the yield advantage the US dollar has held over the AUD since the end of Covid.

On top of this, AUD/USD is being supported by buoyant risk sentiment, particularly after the signing of the weekend's preliminary United States–China trade framework, pending Asia-Pacific Economic Cooperation (APEC) sign-off, which eases demand fears for Australia's commodity exports, for example iron ore and liquefied natural gas, to its largest trading partner.

Australia all groups CPI and Trimmed mean chart

AUD/USD technical analysis

Today’s rally in AUD/USD has taken it further away from important support shown on the chart below. It has now hit the first upside target at 0.6600 - 0.6620, as touched on in Monday's update.

Providing AUD/USD continues to hold above 0.6480 (trend channel support) and above a strong band of support at 0.6440 - 0.6415 (coming from the August lows and the 200-day moving average), allow for AUD/USD to extend its gains towards the 0.6706 high from mid-September.

Be aware that if AUD/USD sees a sustained break of support at 0.6480 and then below support at 0.6440 - 0.6415, it would warn that a deeper pullback, initially towards 0.6300, is underway.

AUD/USD daily candlestick chart

• _{Source: TradingView. The figures stated are as of 29 October 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}