Insights 
VT 
Australia’s Consumer Price Index (CPI) increased by 1.3% in Q3 of 2025, surpassing the 0.7% rise from Q2 and well above the market forecast of 1.1%. On an annual basis, CPI inflation reached 3.2%, exceeding both the previous 2.1% and the predicted 3.0%.
The RBA Trimmed Mean CPI rose by 1.0% quarterly and 3.0% annually, with predictions of 0.8% QoQ and 2.7% YoY. August saw a 3.5% YoY rise in the monthly CPI, compared to a 3.0% increase earlier and higher than the anticipated 3.1%.
Australian Dollar Performance
Following the inflation data, the Australian Dollar gained slightly against the US Dollar, trading at 0.6598 with a 0.21% daily increase. Over the past week, AUD showed varied performance against major currencies, with the strongest gain against the British Pound.
The Australian Bureau of Statistics will soon switch to a monthly CPI reporting format from November 2025. Currently, the RBA’s Official Cash Rate remains at 3.6% after a series of rate cuts earlier in the year.
In the US, a prolonged government shutdown continues to influence market dynamics, alongside impending central bank decisions. Any inflation readings higher than anticipated might impact the AUD/USD pairing but are unlikely to alter RBA’s short-term strategy.
The inflation numbers this morning came in much hotter than we expected, with the quarterly CPI rising 1.3% against a 1.1% forecast. This annual rate of 3.2% pushes inflation above the Reserve Bank of Australia’s target band. The Australian dollar immediately strengthened on the news, as this data challenges the market’s view that price pressures were under control.
Impact on Monetary Policy
This changes everything for the RBA’s meeting next week, as its key inflation gauge, the Trimmed Mean, is now at the top of its 2-3% target. After the three rate cuts we saw earlier in 2025, the door for any further easing has likely slammed shut. The market is now being forced to reconsider the entire path of monetary policy for the next year.
We are already seeing a sharp repricing in interest rate futures this morning. The Australian interbank futures market has now fully priced out any chance of a rate cut in the first half of 2026, a significant reversal from yesterday. In fact, the market is now assigning a nearly 20% probability of a rate *hike* by the middle of next year.
For options traders, this uncertainty ahead of the RBA decision means implied volatility in the Australian dollar is set to rise. We should look at buying straddles on the AUD/USD, which would profit from a significant price move in either direction after the RBA statement. This inflation surprise has shaken the market out of its recent complacency.
This situation feels similar to what we saw globally in 2022, when central banks had to quickly pivot from a dovish stance after underestimating inflation. Those who were positioned for that hawkish turn were rewarded handsomely. The RBA may be facing a similar moment now, suggesting that preparing for a more aggressive policy stance is a sensible strategy.
A directional play would be to purchase AUD/USD call options with expirations that cover the November RBA meeting. This offers a way to profit from a potential hawkish surprise from the central bank while defining our maximum risk. A sustained move above the 0.6600 resistance level could see a rapid acceleration higher.
We must also remain aware of the ongoing US government shutdown, which is suppressing the US dollar and providing a tailwind for the Aussie. If US lawmakers reach a deal, the resulting US dollar strength could limit AUD/USD gains. Therefore, using bull call spreads might be a more cautious approach to express a bullish view on the Aussie dollar.
