Australian Dollar gains a little strength after higher inflation expectations (Daniel Wright)

The Australian Dollar gained a little ground against most major currencies during trading yesterday, following news that expectations for inflation over the next 12 months had risen from 3.8% in September to 4.3% currently.

On top of this, the number of participants in the inflation survey expecting inflation to be on the up rose from 58.4% to 62.8%, with only 3.8% expecting inflation to fall.

The reason that this has led to a little Australian Dollar strength is that it increases the chance of an interest rate hike. An interest rate hike is generally seen as a positive for a currency as it makes it more attractive to investors and a cut in interest rates is generally seen as negative.

One way of slowing rising inflation is to hike interest rates, so the fact that inflation is expected to continue rising at a fairly rapid pace may well lead to the RBA (Reserve Bank of Australia) having to reconsider when they next intend to hike interest rates. At present some institutions feel that we may see a hike in early 2018 whilst others are not expecting any rate hikes now until at least 2019, the market appears to be split.

The Australian Dollar has had a fairly flat period this week against most majors, and with little data for the market to feed off of for the rest of the week I would expect this trend to continue. Next week focus will be on the RBA meeting minutes from their last interest rate decision and unemployment data too, so there is certainly potential for a lot more movement.

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