SYDNEY: The Australian dollar slid to a three-week trough and yields eased on Wednesday after a sharp slowdown in a monthly reading of inflation added to the case for a rate pause next week, while the kiwi was also dragged lower.
The Aussie slid 0.6% to $0.6644, after rising 0.2% to as far as $0.6720.
It had drawn some support around the 200-day moving average of $0.6690 in the past sessions but now major support lies at $0.6459. The kiwi fell 0.7% to $0.6120, having also been mostly unchanged the prior session.
It now faces resistance at the 200-day moving average of $0.6159.
Data showed on Wednesday that Australia’s consumer inflation slowed to a 13-month low in May, driven by a sharp pullback in fuel, in a sign interest rates might not have to rise again in July.
That drove a knee jerk reaction in the Aussie and a fall in local yields as markets moved to price in a lower risk that the Reserve Bank of Australia would have to raise rates again next week, with just a 27% probability priced in for a hike.
Three-year government bond yields fell 7 basis points to 3.882%, while ten-year yields eased 6 bps to 3.885%.
“Today’s figures should push the balance in favour of pausing,” said Paul Bloxham, chief economist for Australia and New Zealand at HSBC.
Australia dollar tentative, awaits inflation test
“Although headline inflation is coming down, and underlying inflation is also falling, the pulse of inflation is still too high… In short, it’s too early to declare victory in the inflation fight, but the end is looking nearer.”
After the CPI data, markets are still fully priced for a quarter-point hike by October, but have reduced the risk of another 25-bps increase to 40% from 60% previously Elsewhere, tumbling profits at China’s industrial firms also reinforced concerns about the sluggish economic recovery in the Asian giant, a negative for the two antipodean currencies.
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