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A November rate hike would bolster the Australian Dollar's yield advantage.
ANZ expects the Reserve Bank of Australia to raise the cash rate 25 basis points in November after July inflation surprised sharply to the upside.
"Following the release of the July CPI data, we now expect the RBA to hike the cash rate 25bp in November," says ANZ.
The call takes the cash rate to 4.60% and puts a rate hike back into the Australian Dollar's price.
Trimmed mean inflation rose 0.5% in July against expectations for 0.3%, holding the annual rate at 3.6% and above the top of the RBA's 2-3% target band.
Headline inflation fell to 3.5% year on year from 3.8%, well above the 3.2% the market had looked for, with the drop itself a base effect that had been flagged well in advance.
The Aussie dollar is a decisive outperformer on the day as investors digest developments that point to higher Aussie rates.
AUD/USD trades higher on the day by a third of a per cent at 0.7172 as it extends a multi-week uptrend, while the Pound-to-Australian Dollar exchange rate has slipped back 0.36% to 1.8982.
"In the minutes for the August Monetary Policy Board meeting, much of the discussion lingered on upside risks to the RBA's updated inflation forecasts," says ANZ. "In light of today's inflation data, these risks are closer to crystalising."
ANZ now sees a 1.0% quarterly trimmed mean print in Q3 as more likely than 0.9%, albeit with a wide margin for error.
The composition of the surprise is the part that speaks to demand.
"The breadth and nature of the upside inflation surprise in July may also be a concern for the RBA," says ANZ.
A larger share of the CPI basket is now rising above a 3% annualised pace on one, three and six-month bases.
"The largest surprises on inflation were from discretionary categories like restaurant meals and domestic holidays, rather than categories that would be more directly affected by higher energy prices," explains ANZ.
"This may suggest that the softening in activity is not as large as previously thought, challenging the RBA's rationale for holding the cash rate in August."
September Is Too Soon
Markets moved to price the risk of a September move on the release, and ANZ does not follow them there.
"While the July data were uncomfortably high, we don't think there is a strong enough case to justify a September hike," says ANZ.
The bank points to residual seasonality, with each of the last three years delivering a strong monthly trimmed mean print in July.
"This may be a sign that some price increases at the start of the financial year are not being fully accounted for by the seasonal adjustment process for expenditure classes with a shorter time series," says ANZ.
The RBA's stated preference for quarterly CPI does the rest of the work, as does its preference for moving the cash rate at Statement on Monetary Policy meetings, which points to November.
The Bar for a Pause Is High
The case softens only if activity slows sharply between now and the November meeting.
"So, activity would need to be very soft and below potential to justify a pause if the trimmed mean pulse is annualising above 3.5%," says ANZ.
"As such, we think the RBA will hike the cash rate once more in November, to 4.60%. This additional hike should be sufficient to slow activity enough to mitigate against further inflation risks," it adds.
Australian Dollar Yield Advantage Burnished, GBP/AUD Breaks Lower
The Australian Dollar was among the top performers of early 2026 while the RBA hiked ahead of its peers, and it lost that tag as those bets were pared back over the following months.
The RBA held at 4.35% on 11 August after three hikes this year, a decision the July numbers have now put under question.
Pricing a November move restores part of what the Australian Dollar gave up, and it does so at a point where sterling has little of its own to offer.
Our week ahead forecast looked for compression in GBP/AUD to break lower on inflation day, and July's numbers have supplied the trigger.
