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 The Australian dollar stayed below two-month highs after subdued
inflation data from China underpinned a growing view that the
world's largest economy was losing momentum. China is a huge export
market for Australia and the Australian dollar is used as a proxy
for investments to China.
China's price data showed annual consumer inflation slowed more than
expected to 1.6 percent in September, below market expectation of
1.8 percent, from 2.0 percent in August.
The inflation number, coming a day after data showed Chinese imports
fell 20 percent in September, suggested the economic picture in
China was cloudy and will be a factor constraining the Fed's ability
to raise interest rates.
"The inflation data today and a sharp decline in imports yesterday
are depressing risk sentiment," said Niels Christensen, currency
strategist at Nordea.
"A clouded outlook for China can used as an argument by the Fed to
postpone a rate hike. In any case we are seeing more and more Fed
members arguing against a rate hike."
Fed Governor Daniel Tarullo told CNBC television he does not expect
the economy to be ready for a rate hike this year, while St. Louis
Fed President James Bullard said an October rate rise is unlikely.
The dollar index fell 0.25 percent to 94.523, its lowest since Sept
18. A prime beneficiary of the dollar's weakness was the euro, which
rose 0.3 percent to $1.1417, with its Sept. 18 high of $1.1460 seen
as a likely target.
Against the yen, the dollar dipped 0.1 percent on Wednesday to
119.60 yen, near Tuesday's low of 119.55, its lowest since Oct. 2.
The yen was hampered by expectations that the Bank of Japan could
unleash stimulus at the end of this month. The Australian dollar
slipped to $0.7240 <AUD=D4>, taking it further away from Monday's
two-month peak of $0.7382.
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Meanwhile, sterling rose 0.3 percent to $1.5290, recovering from a
steep drop on Tuesday when negative inflation data hit sentiment. On
Wednesday, wages and labor market data will be released and robust
data is likely to add to a debate whether the Bank of England will
pip the Federal Reserve in raising rates.
"The pound has had a disappointing start to the week due to a soft
consumer price inflation release but we do not think it makes sense
to chase sterling lower from here," analysts at BNP Paribas said in
a note. "In contrast to consumer inflation, wages are telling a
different story of building price pressures."
(Additional reporting by Hideyuki Sano; Editing by Tom Heneghan)
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