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Australia, NZ dollars bounce from 1-month lows

Tuesday, November 15, 2016 - 11:34

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The Australian dollar bounced from a one-month low on Tuesday, underpinned by rising commodity prices, and as a prediction of rising inflation from the country's central bank implied further interest rate cuts were off the agenda for now.

[SYDNEY] The Australian dollar bounced from a one-month low on Tuesday, underpinned by rising commodity prices, and as a prediction of rising inflation from the country's central bank implied further interest rate cuts were off the agenda for now.

The Australian dollar rose as high as US$0.7582, after the Reserve Bank of Australia (RBA) released minutes of its November policy meeting in which it once again gave an upbeat assessment of the economy.

It touched US$0.7524 on Monday, the lowest since Oct 13, but has now steadied around US$0.7556.

"There is a clear change in the Reserve Bank's attitude to inflation. Admittedly, it is not flashing warning signs," Craig James, chief economist at CommSec.

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"Simply, interest rate settings are likely to remain stable until well into 2017."

RBA Governor Philip Lowe speaks in Melbourne later in the day and economists were keen to hear his views on whether US President-elect Donald Trump's election promises would actually lift inflation and interest rates in the world's largest economy.

The Aussie has fallen 2.5 per cent since Mr Trump won the election last week, as investors sent the greenback and bond yields soaring.

"We are particularly interested to see the RBA's take on a post-Trump world in future meetings and speeches, now that the reflation trade is back," said Matt Simpson, Melbourne-based senior analyst at ThinkMarkets.

Elsewhere, the Aussie was slightly firmer against its New Zealand cousin, but fell against the euro and the yen.

The New Zealand dollar stood at US$0.7114, rising from a one-month low of US$0.7070 touched on Monday.

New Zealand was still reeling from the impact of several powerful earthquakes, with transport links in the south island most heavily hit.

While the damage is still being assessed, analysts estimate rebuilding work could cost NZ$2.5 billion (S$2.52 billion).

"A lingering effect from Monday's quake is likely to be higher inflation," said Nick Tuffley, ASB Chief Economist.

"Transport-associated costs look set to rise. Further, reconstruction work will add capacity pressures to an already-constrained construction sector, also impacting on inflation," Mr Tuffley added.

At the margin, the quakes could narrow the odds of another rate cut by the Reserve Bank of New Zealand (RBNZ) next year if the economic disruption is greater than anticipated, Mr Tuffley said.

The RBNZ cut interest rates this month to restrain a rising currency and push inflation higher even as the economy grew an annual 3.6 per cent and the jobless rate dropped to near eight-year lows.

New Zealand government bonds eased, sending yields about two basis higher at the longer end of the curve.

Australian government bond futures slipped, with the three-year bond contract down two ticks at 98.160. The 10-year contract edged half a tick lower to 97.37.

REUTERS

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