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Australia dollar weaker on underwhelming inflation, kiwi dragged lower

Wednesday, April 26, 2017 - 11:00

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The Australian dollar slipped on Wednesday for a second consecutive session after underwhelming inflation figures supported expectations of a benign interest rate outlook for months to come.

[SYDNEY] The Australian dollar slipped on Wednesday for a second consecutive session after underwhelming inflation figures supported expectations of a benign interest rate outlook for months to come.

The Australian dollar dropped a quarter of a US cent to US$0.7517, having briefly popped as high as US$0.7557.

Strong support was found at 75 US cents, with resistance at the 200-day moving average of US$0.7612. The Aussie has lost a full US cent since hitting a peak above 76 US cents last week.

It lost some momentum after key measures of core inflation stayed stubbornly short of the Reserve Bank of Australia's (RBA) 2 to 3 per cent target band at 1.8 per cent.

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Market voices on:

Interbank futures barely budged, implying investors still saw scant chance of another easing from the RBA in coming months. "Inflation is not a threat to the domestic economy," said Savanth Sebastian, a senior economist at CommSec.

"The Reserve Bank doesn't need to cut rates again with inflation trending higher, rather than lower... But similarly rate hikes are off the agenda."

The New Zealand dollar dropped to a two-week low of US$0.6932, having shed 1.4 per cent so far this week.

The kiwi emerged from the Anzac day public holiday on Tuesday, which muted trading volumes, as one of the worst-performing major currencies.

The New Zealand dollar was hit particularly hard by a distaste for commodity currencies after US president Donald Trump vowed protectionist moves towards Canadian lumber imports. New Zealand's small, open trading economy is particularly vulnerable to any threats to free trade.

"Commodity currencies are out of favour...still the New Zealand dollar has underperformed," said Jason Wong, currency strategist at BNZ bank, in a research note.

New Zealand government bonds eased, sending yields 2.5 basis points higher at the long end of the curve.

Australian government bond futures eased, with the three-year bond contract off 3 ticks at 98.120. The 10-year contract fell 3.5 ticks to 97.3450, while the 20-year contract slipped 5 ticks to 98.7650.

REUTERS

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