SYDNEY: The Australian dollar edged up briefly on Wednesday after a surprisingly high reading on consumer prices seemingly dealt a blow to hopes for a near-term rate cut, though analysts cautioned there was a lot of noise in the data.
The monthly reading of consumer prices showed an annual increase of 2.8% in July, up from 1.9% in June and far above the median forecast of 2.3%.
Part of the jump was due to the timing of electricity rebates, which would unwind in August and likely pull the index down again.
Yet the trimmed mean measure of core inflation also rose sharply to 2.7%, from 2.1%, and that excluded electricity.
That surprise could make the Reserve Bank of Australia more reluctant to follow up this month’s rate cut with another in September, and pricing for that meeting slipped to 25% from 35% ahead of the data.
“The monthly indicator is only a partial read on inflation and the RBA is likely to wait until they have full information on inflation in Q3 before changing policy,” said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.
“Despite some upside in these data, we expect a fairly benign print for core inflation in Q3 overall, which will pave the way for a November rate cut.”
The CPI report for the third quarter is due on October 28, while the RBA meets on November 4.
Markets still imply around a 93% chance of a quarter point cut to 3.35% in November. The muted reaction in rates snuffed out an initial rise in the Aussie and left it flat at $0.6491.
Resistance lies at $0.6523 and $0.6569, with support at $0.6415.
The kiwi dollar was also little changed at $0.5852, after adding 0.2% overnight.
The technical background remains bearish and the currency needs to get back above $0.5898 to avoid a test of its recent five-month low at $0.5800.
Australian 10-year bonds nudged up 1 basis point to 4.328% , leaving them 6 basis points above their US counterparts.
The RBA this month also decided to let its holdings of government bonds roll off as they mature, rather than speeding up the process as a form of quantitative tightening.
“We judge that this removes a modest negative tail risk for bonds, and we continue to think that the 10-year can outperform the US 10-year,” said Andrew Ticehurst, an analyst at Nomura.
