Aussie knocked lower by tame inflation, bonds rally

WELLINGTON/SYDNEY: The Australian dollar fell about half a cent and underperformed the kiwi as interbank futures moved to fully price in a November rate cut after key measures of underlying inflation rose by much less than expected.

Aussie falls to $1.0364 from $1.0435 after data shows a key measure of underlying inflation coming in at 0.3 pct on the quarter, well below a forecast 0.6 pct increase.

Aussie last at $1.0369 vs $1.0457 late in New York, having broken below the 200-day moving average at $1.0395. Next support seen at $1.0313.

Interbank futures rally across the strip with the November contract implying a yield of 4.5 percent as markets fully price in a 25 bps cut to the cash rate.

Australian debt futures also up, with the three-year contract 0.17 points higher at 96.240 while the 10-year gains 0.12 points to 95.580.

Data seen opening the door for the Reserve Bank of Australia (RBA) to ease at the Nov. 1 policy meeting. The RBA had already said the inflation outlook was less concerning and flagged the prospect of a rate cut if the latest data proved benign.

Aussie gives back some of its recent gains against the kiwi, falling to NZ$1.3014 , off a four-month high of NZ$1.3125 touched on Tuesday.

NZ dollar drifts in a narrow range between $0.7939 and $0.7975, last at $0.7962, little changed from late NY levels.

Support for kiwi seen at $0.7901, then $0.7861 while resistance around the psychological level of $0.8000.

NZ business confidence survey softens for a third month in a row in October, with businesses' view of their own outlook holding up better than their view of the general economy. Inflation expectations ease. See

Attention now on central bank rate review and trade data on Thursday, with expectations rates will be held steady because of the global outlook, while softening commodity markets and prices will dent the trade surplus, as shown by dairy giant Fonterra.

Tame Q3 NZ inflation data and plan to keep a tight rein on spending on Tuesday seen backing views that the RBNZ has ample room to keep rates low for longer.

Market implies 32 bps of rate rises over the next 12 months, with pricing now reflecting a 75 percent chance of an increase by June next year.

NZ government bonds track a big rally in US Treasuries on safety buying, with local yields around 3 bps lower.