The Australian dollar is rallying ahead of today's crucial inflation report

SHAH MARAI / AFP / Getty Images

The Australian dollar has been marching higher overnight, boosted by surging bulk commodity prices and signs of stability in the Chinese yuan.

At 7.40am AEDT, the AUD/USD was buying .7640, having hit a high of .7654 earlier in the session.

AUD/USD Hourly Chart

The scoreboard below shows that the Aussie has performed across the board, particularly against the crosses.

  • AUD/USD 0.7640 , 0.0031 , 0.41%
  • AUD/JPY 79.62 , 0.36 , 0.45%
  • AUD/CNH 5.1765 , 0.0165 , 0.32%
  • AUD/EUR 0.7019 , 0.0029 , 0.41%
  • AUD/GBP 0.6269 , 0.0054 , 0.87%
  • AUD/NZD 1.0669 , 0.0012 , 0.11%

Looking ahead to Wednesday trade in Asia, the movements in the Aussie will be dictated by one thing and one thing only, at least in the second half of the session: Australia’s Q3 consumer price inflation (CPI) report, due out at 11.30am AEDT.

Elias Haddad, senior currency strategist at the Commonwealth Bank, believes that core inflation, also known as underlying inflation, will increase by 0.4% for the quarter, helping to support the Aussie further.

“We expect the policy relevant Australian Q3 underlying CPI inflation (average of trimmed mean and weighted median CPI) to print at 0.4%, he said in a research note released this morning.

“Such an outcome would further support AUD, particularly on the crosses, because it would lead to a modest upward revision to Australian interest rate expectations.”

On the contrary, should the core figure print below the median economist forecasts for an increase of 0.4%, Haddad says this “would raise odds of a 1 November 25 basis point RBA rate cut and undermine AUD”.

Markets currently put the probability of a rate cut next week at just 14%.

“Given the minimal market pricing for a near-term RBA rate cut, a downside surprise in the CPI report would generate a greater AUD reaction than an upside CPI surprise,” said Haddad.

Outside of the inflation report, the calendar in Asia is devoid of market moving events.

Later in the session, the Aussie is likely to be influenced by the release of services PMI, new home sales and crude oil inventory figures from the US that will be released from 12.45am AEDT.

NOW READ: Your 10-second guide to today’s Australian inflation report

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