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The Australian Dollar rallied against all G10 peers following the release of domestic inflation numbers that trounced expectations and raised the prospect of another intervention by the Reserve Bank of Australia (RBA).

Money market pricing showed investors raised bets for another interest rate rise at the RBA in November after the ABS said CPI inflation rose 5.4% in the year to the end of the third quarter, exceeding estimates for a rise of 5.3%.

CPI rose 1.2% quarter-on-quarter in Q3, which exceeds the estimate of 1.1% and represents a pickup on Q2's 0.8% increase.

The trimmed mean, which the RBA pays special attention to, rose 5.2% year-on-year in Q3, which exceeds the estimate of 5.0%. Another measure, the weighted mean, rose 5.6% y/y, which exceeds the 5.40% expected and the 5.3% printed in Q2.

The currency market impact was unambiguous, with the Aussie rallying across the board:

Above: AUD performance on October 25. Set up a daily rate alert email to track your exchange rate OR set an alert for when your ideal exchange rate is triggered ➡ find out more.

The Pound to Australian Dollar exchange rate, already struggling ahead of the release, fell a further quarter of a per cent to 1.9085.

The Australian Dollar to U.S. Dollar conversion is 0.36% higher at the time of writing at 0.6377, and the Euro to Australian Dollar is down 0.20% at 1.6620.

"AUD/USD rose by over 40 pips and briefly touched 0.6400 following the release of the stronger than expected Q3 23 CPI. Both the headline and trimmed mean CPIs were about 0.2ppts stronger than expected in the quarter," says strategist Kristina Clifton at Commonwealth Bank of Australia.

"We now expect the RBA will hike the cash rate 25bp at its next meeting as the Q3 CPI data is too inconsistent with its forecast path for the Board to tolerate," says Catherine Birch, Senior Economist at ANZ.

ANZ says headline CPI (which printed at 1.2% y/y in Q3) would need to slow to at least 0.7% q/q in Q4 to reach the RBA’s end-2023 forecast of 4.1% y/y. The trimmed mean measure is even further off track, with Q3's 1.2% y/y print requiring a 0.5% q/q in Q4 to hit the 3.9% y/y forecast.

"There was a broad-based reacceleration on a quarterly basis across several important measures, suggesting the weaker Q2 result might not have been indicative of the underlying trend," says Birch.

The ABS reported non-tradables inflation reaccelerated to 1.3% q/q, pointing to an ongoing mismatch between domestic demand and supply, according to ANZ.

Services inflation picked up to 1.0% q/q and the reacceleration in goods inflation to 1.2% q/q.

Above: "Annual inflation is not falling fast enough" - ANZ.

Joining ANZ, the economics team at Commonwealth Bank of Australia is now predicting the RBA will raise the cash rate by 25bp at the November meeting.

"We consider the lift in underlying inflation over Q3 2023 to be sufficiently strong for the RBA to act on their hiking bias at the upcoming meeting," says Gareth Aird, Head of Australian Economics at CBA.

Financial markets are currently pricing around a 60% chance of a rate hike in November, compared to around a 25% chance before the CPI.

RBA Governor Michelle Bullock confirmed the RBA's willingness to raise interest rates if required, stating earlier this week, "the Board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation".