Aussie jumps as inflation steadies, kiwi trails

[SYDNEY] The Australian dollar rose half of a US cent on Wednesday to post its biggest jump in a week as inflation ran slightly faster than expected, cementing views the central bank will stand pat on rates into next year.

The Australian dollar climbed 0.5 per cent to US$0.7684, its second straight day of gains. It briefly touched a high of US$0.7709, a chart level where it runs into tenacious technical resistance.

Data out on Wednesday showed consumer prices rose an annual 1.3 per cent last quarter, topping forecasts for 1.1 per cent. Key measures of underlying inflation favoured by the Reserve Bank of Australia (RBA) on average rose 1.6 per cent.

"The RBA will see today's pick up in inflation as a net positive. So this pushes back any concerns of further easing well into 2017," said Matt Simpson, senior analyst at ThinkMarkets.

"We expect to see Australia's inflation expectations at least halt their decline following today's data."

Futures markets again shaved expectations of another cut in interest rates, implying a mere 4 per cent chance the RBA would move at its Nov 1 policy meeting.

Also helping the Aussie was a surge in the price of iron ore, Australia's single largest export. Dalian iron ore futures climbed to a fresh 26-month peak on Wednesday, underlining demand from China, Australia's leading trading partner.

Coal, another key Australian export, is also on an upswing. Analysts estimate the rebound in prices, if sustained, could wipe out the country's overall trade deficit and lift annual growth in nominal gross domestic product from the current 3 per cent to a robust 5 per cent.

The Aussie did well in cross trades too, rising 0.7 per cent on the kiwi to NZ$1.0742 for its fourth straight day of gains. The euro fell to its lowest since May 2015 at A$1.4150 , while the Aussie added 0.5 per cent against the yen.

The New Zealand dollar dipped 20 ticks to US$0.7148 in the wake of the Australian inflation numbers since markets still expect the Reserve Bank of New Zealand to cut its rates next month.

New Zealand's central bank meets on Nov 10 and is considered almost certain to ease a quarter point to a record low of 1.75 per cent, though that might well be the last cut in the current cycle.

New Zealand government bonds eased, sending yields 1.5 basis points higher at the long end of the curve.

Australian government bond futures were mixed, with the three-year bond contract off three ticks at 98.28. The 10-year contract gained one tick to 97.7550.

REUTERS