• Inflation in Australia below expectations, AUD plummets
  • AUDUSD breaks support at 0.7740 could see more downside
  • AUDCAD sliding down, eyeing 0.9615

No interest rates hike are imminent in Australia as the third quarter brought weaker consumer demand and disappointing inflation and in the world where monetary policy is being tightened in an increased number of places that means a real burden on the currency. Little wonder the Aussie is struggling. 

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Inflation in Australia has been persistently below the RBA target. Source: Macrobond, XTB Research 

Inflation data in Australia is reported quarterly so the print always attracts investors’ attention. The market generally anticipated a recovery in annual inflation rate to 2%, both for the headline and the core. That is a lower range of the RBA inflation target (which is 2-3%) and it would provide at least some relief to policy makers. But it did not happen. Inflation actually softened from 1.9% to 1.8% y/y as quarterly inflation missed expectations (0.6% vs 0.8%) despite recovery in energy prices. Core inflation rebounded to 1.9% y/y but it was still less than expected and a seventh consecutive quarter of core inflation below 2% – a situation that never occurred in Australia before.  

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AUDUSD has just broken 0.7740 support zone, could see more downside. Source: xStation5 

Unsurprisingly the AUD was left tanking and is down 0.7% today against the greenback. The outlook for AUDUSD is fairly grim as the pair has just cracked the 0.7740 zone which used to be resistance in the past, then acted as a support but now could be a resistance again. If today’s candle can close below that zone, the pair could see more downside. 

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AUDCAD remains high despite diverging prospects for Australia and Canada, could be looking south. Source: xStation5 

Let us also recall that AUDCAD is our top pick for the fourth quarter. The pair remains relatively high despite diverging prospects for Australian and Canadian economies. The next zone that could be tested here is around 0.9615.