The Reserve Bank of Australia (RBA) has slowed the speed of its tightening measures. An upside surprise on inflation data could raise concerns about the RBA’s stance and weigh on the Aussie, economists at Commerzbank report.

Is the RBA overly cautious?

“Price pressure in Australia remains high as inflation data tonight is likely to illustrate. As a result, the FX market might be of the view that RBA is not acting decisively enough against inflation.”

“If inflation were to surprise on the upside the market might get concerned that the RBA might underestimate inflation dynamics. Even though the RBA signalled that future rate decisions would be data dependent, the surprise slowing of the rate hike speed in October is likely to have caused doubts about the RBA’s determination.”

“The situation in China, Australia’s most important trade partner, might fuel additional concerns on that front. That means it might get difficult for the AUD to gain further ground against the USD.”

See: Australian CPI Preview: Forecasts from three major banks, inflation to accelerate further