LONDON: Australia's dollar dropped one percent on Wednesday after weaker-than-expected inflation numbers heightened the prospect of an interest rate cut, while the U.S. dollar held firm within a whisker of the previous session's 22-month high.
The greenback was propelled higher by strong U.S. housing data - the latest indicator to suggest the American economy is outgrowing rivals, encouraging investors to snap up the U.S. currency in recent weeks.
Data on Wednesday showed Australia's headline consumer price index was flat in the January-March quarter, below forecasts and the lowest since early 2016.
"Given the large decline over the last 24 hours, I could see AUD bouncing back later today just on profit-taking, but I think in general it's likely to be weak for some time," said Marshall Gittler, currency strategist at ACLS Global, noting that the market expectations for a rate cut in May had grown.
He also noted data indicating currency managers were long the Aussie. "That means there are plenty of sellers of AUD left in the market," he said.
The Aussie was the biggest mover among the main currencies, falling to a 1-1/2 month low of $0.7027.
The dollar index, which measures the U.S. currency versus a basket of six major rivals, stood at 97.660 after rising to 97.777 overnight, its highest since June 2017.
Data on Tuesday showed sales of new single-family homes in the U.S. jumped to a near 1-1/2-year high in March.
The euro weakened 0.2 percent to $1.1202 but held above Tuesday's lows of $1.1192.
"The European economy looks particularly weak relative to the U.S. economy and this highlights the euro's weakness," said Takuya Kanda, general manager at Gaitame.Com Research.
"The United States is now expected to have experienced firm growth in the first quarter, reinforcing the dollar's strength relative to the euro."
U.S. first quarter GDP data on Friday could strengthen the case that while the current period of global expansion is in its late stages, the United States is on a firmer footing.
The weakness in the euro allowed the Swiss franc to strengthen from six-month lows.
The franc, which has been hit hard as investors dumped safe-haven currencies during this year's rally in risk assets, rose 0.2 percent to $1.1425 francs.
Sterling extended recent losses to hit another two-month low of $1.2915, as pressure grows on Prime Minister Theresa May to come up with a Brexit plan amid stalled negotiations with the opposition Labour party.
Comments
Comments are closed.