SYDNEY: The Australian dollar remained on the defensive on Wednesday after local inflation data proved too mixed to offer much support, with market pricing on interest rates little changed.
The Aussie was a fraction firmer at $0.6559, after slipping 0.3% overnight to hit a three-month low of $0.6543.
October has been tough for the currency having shed 5% in the biggest monthly fall since September 2022. The kiwi dollar was flat at $0.5970, after also touching a three-month trough at $0.5954 overnight.
It has lost almost 6% so far in October. Australian data showed consumer prices rose 0.2% in the third quarter, a little lower than expected, bringing annual inflation down to a 3-1/2-year low of 2.8% and back in the Reserve Bank of Australia’s (RBA) 2%-3% target band.
However, the RBA is focused on core inflation and that slowed more modestly to 3.5%.
Policymakers have repeatedly emphasised that core inflation was still too high to justify an imminent easing in rates.
As a result, markets imply just a one-in-ten chance the RBA will cut its 4.35% cash rate at its policy meeting next week.
They see a 23% probability of a cut at the following meeting in December, and 42% for an easing in February.
“A start date earlier than February seems like a low-probability outcome,” argued Luci Ellis, chief economist at Westpac.
Australian dollar undermined by rising US yields ahead of inflation test
“Given the uncertainties surrounding the US election and its aftermath, we think it’s likely that the RBA will stand pat this month and see how global events play out.”
Ellis, however, did see a chance the RBA could soften its message on rates at next week’s meeting, given core inflation is moving closer to its target band.
The Aussie has been pressured in part by a steady rise in US bond yields in recent weeks as markets scaled back expectations for Federal Reserve’s easing, which in turn lifted the US dollar across the board.
Investors are much more dovish on the Reserve Bank of New Zealand, expecting it to again cut rates by 50 basis points at a meeting on Nov. 27.
The current 4.75% cash rate is seen reaching around 3.14% by the end of next year, while Australian rates are predicted to decline only modestly to 3.75%.