Australian dollar gets sliver of support as inflation firms

SYDNEY: The Australian dollar edged higher from three-month lows on Wednesday after inflation data proved just firm enough for investors to price out almost any chance of a cut in interest rates next week.

The Aussie inched to $0.6765 from a trough of $0.6737 touched on Tuesday, but was still nursing losses for the week so far. Immediate resistance is at $0.6775 and it needs to get back to $0.6830 to repair the technical outlook.

The New Zealand dollar was stuck at $0.6540 and just a whisker from a two-month low of $0.6521.

Both currencies have been hit hard by the scare over the coronavirus, which is likely to crimp tourism from China and perhaps even its demand for commodities.

With Chinese markets shut all week, investors have been hedging China risks by selling the Aussie and kiwi, liquid proxies for the yuan and global commodity prices.

So there was only limited relief for the Aussie when data showed consumer prices rose an annual 1.8% in the December quarter, just topping forecasts of 1.7%.

Core inflation stayed stuck at 1.6% and marked its fourth straight year below the Reserve Bank of Australia's (RBA) target of 2-3%.

Still, the market had been braced for an even softer number and reacted by paring back the chance of cut in the 0.75% cash rate when the RBA meets on Feb. 4.

Futures slipped across the curve to imply just an 8% probability of a February easing, compared with more than 50% a couple of weeks ago. March was now put at a 32% chance, rising to 58% by April and 84% by May.

"The pick-up in inflation in Q4 should be the final nail in the coffin for hopes of a February rate cut," said Ben Udy, an economist at Capital Economics.

"Even so, we think economic activity will remain subdued in 2020 and expect underlying inflation to decline again before long. The RBA therefore still has more work to do."

Government bond futures declined on the data, with three-year bond contract losing 4.5 ticks to 99.335. The 10-year contract dropped 7 ticks to 98.9650, implying a yield of 1.035%. - Reuters

source https://www.thesundaily.my/business/australian-dollar-gets-sliver-of-support-as-inflation-firms-BM1943407