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Forex pairs in this Article » EUR/USD (Bali) - The Australian CPI numbers came way hotter than the market was expecting, with the immediate consequence being market pricing +5bp RBA rate hikes over 12 months as a response.

The jump over re-pricing the monetary policy intents by the RBA sent the Australian Dollar soaring, breaking a first important layer of offers clustered around 0.8850, with solid follow through noted as next resistance area between 0.8880 and 0.89 looms nearer.

As a reminder, the latest concerns by Governor Stevens at the helm of the RBA were mostly centered towards a still 'uncomfortably high exchange rate'. From now on, if a lower AUD exchange rate is causing some import price pressures coming into the domestic economy, the implications may be that those supporting a 'rate hold for longer' may be gratified, although it may still be premature to speculate on rate rises, as that will most likely cause the most undesirable of all outcomes for the RBA, that is, a more expensive AUD.

RBA view on inflation to have a rethink?

The RBA will most likely have to re-adjust their comments relating to inflation, which on Nov 13 meeting, could read:

"Overall, the inflation outlook is little changed since the previous Statement. Inflation, on an underlying basis, is forecast to remain at or below the centre of the target range over the forecast period. This reflects slightly higher-than-expected inflation of late, offset by the effect of slightly softer labour market conditions on domestically generated inflationary pressures. Also, the depreciation of the exchange rate since earlier in the year is expected to push prices of tradable items gradually higher in coming quarters, but by slightly less than was expected three months ago."

View from top economists - CBA

According to Michael Blythe, Chief Economist at CBA: "A disappointing set of numbers, which are a reminder that inflation is still a two-way story in Australia. There are some upside risks sitting out there. The key part is we're starting to see some import price pressures coming through from the currency, but we're not seeing that offsetting slowdown from domestic inflation that the Reserve Bank has in its forecasts, an indication of some upside risks to be moved through 2014. "It's another tick in the box that says no more rate cuts, and gives some support for those who think interest rates will be going up by the end of the year. We've got a rate rise factored for the end of 2014 partly on the idea of upside inflation risks."
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