The Reserve Bank of Australia’s trimmed mean consumer price index (CPI) surprised everyone by hitting 3% year-on-year in the third quarter, up from the expected 2.7%. This signals rising inflation pressures within the Australian economy. In currency news, the NZD/USD is holding close to a three-week high but remains below 0.5800 due to a slight increase in the US Dollar. The Japanese Yen is also seeing limited positive movement as traders await policy updates from the Federal Reserve and the Bank of Japan.

Gold Market Recovery

The gold market is bouncing back from a recent low, as traders wait for the Federal Reserve’s decision on interest rates. Early Wednesday, gold prices rose towards $4,000 after a significant drop from their record high of $4,382. In the crypto world, tokens like Pi Network, Aerodrome Finance, and Official Trump are outperforming the broader market in the last 24 hours. These tokens are trying to break new ground, with Pi Network aiming to go above its 50-day Exponential Moving Average. Lastly, the focus in financial markets is shifting. There’s less attention on major Federal Reserve announcements and more on subtle liquidity operations, influencing market strategies and what investors are paying attention to. The 3% Trimmed Mean CPI figure for Australia is a major surprise, well above the 2.7% forecast, landing right at the top of the RBA’s target range. This effectively rules out any near-term interest rate cuts and raises the possibility of another rate hike. As a result, derivative markets are quickly adjusting, with the implied cash rate for mid-2026 moving higher.

Australian Dollar Positioning

This presents a good opportunity to invest in the Australian dollar, especially against currencies like the British Pound, where central banks are being more cautious. Interest in AUD/GBP call options is growing as bets on a Bank of England rate cut increase. For AUD/USD, which has been stalled around the 0.6450 level for weeks, this could provide the boost needed to break higher, especially if the Fed’s upcoming decision is seen as neutral. In the local market, we should expect rising volatility in Australian stocks as expectations for prolonged higher interest rates take hold. In the ASX 200 options market, implied volatility has risen to its highest level in over a month, indicating that traders are either buying protection or preparing for a larger-than-expected move. This reminds us of early 2024 when persistent inflation forced the RBA to keep its hawkish stance longer than anticipated. However, all of this unfolds against the backdrop of the Federal Reserve’s upcoming policy decision. While Fed Funds futures indicate a greater than 90% chance that the US central bank will maintain the current rates, the focus is shifting to the Fed’s balance sheet and liquidity actions. Any hints of a change in quantitative tightening will likely have a more significant impact on the US dollar than the rate decision itself. This uncertainty also affects assets like Gold, which is finding some support but struggling to decisively reach the $4,000 mark. A surprisingly hawkish message from the Fed could strengthen the US dollar and limit Gold’s gains, while a dovish surprise might increase the metal’s price and further boost the Australian dollar. Create your live VT Markets account and start trading now.

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