Rate hikes by RBA

The Australian dollar was one of the weakest majors on Friday as broad US dollar strength and declines in equities weighed on the carry trade currency. The Aussie will face high event risk next Tuesday, when data is forecasted to show that Australia's headline consumer price index rose 0.9 percent during Q3, bringing the annual rate down to a 10-year low of 1.2 percent from 1.5 percent. However, the Reserve Bank of Australia’s core measures are projected to hold at more robust levels on an annual basis, with the trimmed mean anticipated to slip to 3.2 percent from 3.6 percent and the weighted median forecasted to slip to 3.7 percent from 4.2 percent. Such moves would tell us that prices for volatile items like energy are responsible for the steep drop in headline consumer prices, and unless the core measures plunge, the markets are likely to remain in favor of additional rate hikes by the Reserve Bank of Australia. In fact, Credit Suisse overnight index swaps are full pricing in a 25 basis point increase by the RBA during their next meeting on November 2, and stronger-than-expected consumer prices could further this sentiment and send the Australian dollar higher.