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Dollar down after soft CPI


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The Australian dollar fell to a two week low after weaker than expected local inflation figures.

At midday on Wednesday, the local unit was trading at 93.05 US cents, down from 93.67 cents on Tuesday.

It fell as low as 92.96 US cents after official figures showed the consumer price index rose 0.6 per cent in the March quarter, for an annual rate of 2.9 per cent.

The market was expecting the annual rate to be 3.2 per cent, which would have been outside the Reserve Bank of Australia’s two to three per cent target band.

Westpac chief currency strategist Robert Rennie said the Australian dollar has been rising in recent days in anticipation of higher inflation numbers, and the weaker figures surprised the currency market.

“I think today’s data should put a clearer cap on the upside for the Aussie dollar,” he said.

Mr Rennie still expects that another interest rate movement by the RBA is a long way off.

“Rate expectations are clearly changing on the basis of today’s data,” he said.

“I think it’s hard to justify any near term movements by the RBA.”

Soon after the release of the CPI data, HSBC released its Chinese preliminary purchasing managers’ index, which showed that manufacturing activity fell in April, but not more than economists were expecting.

Mr Rennie said the figures were not a positive for the Australian dollar.

“It looks to me that the Aussie dollar will continue to weaken, 93 US cents does act as an important level, but it does look as if it will give way,” he said.

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