SYDNEY: The Australian dollar was steady on Wednesday, taking in stride a set of surprisingly soft inflation figures that only cemented wagers for an interest-rate cut next month, while bond yields slumped.
Data showed the headline consumer price index rose 0.7% in the second quarter, just under forecasts of 0.8% and leaving the annual pace at 2.1%. Crucially, the trimmed mean measure of core inflation ran at 0.6%, under expectations of 0.7%.
As a result, markets ramped up bets for a quarter-point rate cut in the 3.85% cash rate next month to 92%, from about 80% before the data, and rates are now seen bottoming at either 3.1% or 2.85% by early next year.
“At the July meeting, the RBA still had some reservations about dwelling cost and consumer durables inflation. But the signal in these data is relatively weak,” said Sean Langcake, Head of Macroeconomic Forecasting for Oxford Economics Australia.
“The last two employment prints have been soft and there are no major red flags in today’s inflation data. Accordingly, we expect to see a cut in August.”
The prospect of further easing saw Australian three-year bond yields slide 7 basis points to 3.365%.
The Aussie was little changed at $0.6517 given the cut has been long priced in. It eased 0.15% overnight as the dollar extended its bounce ahead of some key risk events such as the Federal Reserve policy decision later in the day and the U.S. jobs report on Friday.
U.S. and Chinese officials agreed to seek an extension of their 90-day tariff truce on Tuesday, following two days of what both sides described as constructive talks in Stockholm aimed at defusing an escalating trade war.
The kiwi dollar edged up 0.2% to $0.5966, after slipping 0.25% overnight to mark the fourth straight session of declines. It now faces resistance at 60 cents.
Investors are pricing in a 70% probability that the Reserve Bank of New Zealand will cut its 3.25% cash rate by another 25 basis points when it meets on August 20.
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