Australia’s Consumer Price Index (CPI) rose by 1.3% in the third quarter of 2025. This increase is greater than the 0.7% rise in the second quarter and exceeded the market prediction of 1.1%. Yearly CPI inflation reached 3.2%, up from 2.1% last year and higher than the expected 3.0%. The RBA Trimmed Mean CPI increased by 1.0% quarterly and 3.0% annually. Predictions for these figures were 0.8% for the quarter and 2.7% for the year. In August, the monthly CPI recorded a 3.5% annual increase, higher than last month’s 3.0% and the anticipated 3.1%.

Australian Dollar Performance

After the inflation data was released, the Australian Dollar strengthened slightly against the US Dollar, trading at 0.6598, up 0.21% for the day. In the past week, the AUD showed mixed performance against major currencies, performing best against the British Pound. Starting November 2025, the Australian Bureau of Statistics will report CPI monthly instead of quarterly. Meanwhile, the RBA’s Official Cash Rate remains at 3.6%, following several rate cuts earlier this year. In the US, a long government shutdown is impacting market dynamics, along with upcoming central bank decisions. Any unexpected inflation readings could affect the AUD/USD exchange rate but are not likely to change the RBA’s short-term plans. Today’s inflation report was much higher than expected, with a quarterly CPI increase of 1.3% versus a 1.1% forecast. The annual rate of 3.2% exceeds the Reserve Bank of Australia’s target range, causing the Australian Dollar to strengthen immediately. This raises questions about whether price pressures are truly under control.

Impact on Monetary Policy

These unexpected results significantly alter the RBA’s upcoming meeting. The key inflation measure, the Trimmed Mean, now sits at the upper end of the RBA’s 2-3% target range. After three rate cuts earlier in 2025, further easing seems unlikely. The market must now rethink its monetary policy outlook for the next year. Interest rate futures saw a notable shift this morning. The Australian interbank futures market has removed any chance of a rate cut in the first half of 2026, a big turnaround from the day before. Now, the market is assigning nearly a 20% chance of a rate hike by mid-next year. For options traders, this uncertainty ahead of the RBA meeting means we can expect higher implied volatility in the Australian dollar. Buying straddles on the AUD/USD could be profitable if prices move significantly in either direction after the RBA’s announcement. This inflation surprise has jolted the market out of its recent calm. This situation feels reminiscent of global events in 2022, when central banks quickly shifted from a cautious stance after misjudging inflation. Those who prepared for a hawkish shift were rewarded. The RBA might be at a similar turning point now, making it wise to consider a more aggressive policy approach. A strategy could be to buy AUD/USD call options with expirations that coincide with the November RBA meeting. This allows us to benefit from any hawkish surprises while also limiting our risk. If the AUD moves above the 0.6600 resistance level, we could see a rapid rise. We must also keep in mind the ongoing US government shutdown, which is weakening the US dollar and helping the Australian dollar. If US lawmakers strike a deal, a stronger US dollar could cap AUD/USD gains. Therefore, using bull call spreads could be a safer way to express a positive outlook on the Aussie dollar. Create your live VT Markets account and start trading now.

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