Aussie shines after
inflation data, dollar retreats from highs
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[October 26, 2016]
By Anirban Nag
(Reuters) - The Australian dollar was an outperformer on Wednesday,
bucking a broad risk-averse environment in global markets, helped by a
higher-than-expected inflation reading that dented chances of an
interest rate cut in the near term.
Consumer prices rebounded by more than forecast last quarter in
Australia, while the annual pace of core inflation edged up for the
first time in more than a year, leading investors to price out almost
any chance of a cut in rates next week.
The Reserve Bank of Australia holds its monthly policy meeting early
next week and is expected to keep rates at a record low 1.5 percent.
The Aussie jumped to $0.7709 <AUD=D4> from $0.7645 before the data. It
was last up 0.5 percent on the day at $0.7685 and rose to a three-month
high against the lower-yielding yen <AUDJPY=>. The safe-haven yen
performs well during weakness in stock markets as was the case on
Wednesday, but the momentum was clearly in favor of the higher-yielding
"The headline inflation was stronger than expected and it looks like a
November rate cut is off the table," said Yujiro Goto, currency
strategist at Nomura.
"While there are expectations lurking of further rate cuts early in the
next year, at the moment we could see some more upside in the Aussie."
Meanwhile, the dollar index, which tracks the greenback against six
major rivals, shed 0.2 percent to 98.492 <.DXY> after rising as high as
99.119 on Tuesday, its highest level since Feb. 1.
The U.S. currency has been bolstered by expectations the Fed is on track
to raise rates by the year-end. The market was pricing in a greater than
78 percent chance that the Fed would raise rates in December, according
to CME Group's FedWatch.
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Euro and Dollar banknotes are seen in a picture illustration taken
October 19, 2016. REUTERS/Leonhard Foeger
The focus will be on third-quarter growth data to be released on Friday
but traders expect the dollar to trade in a range ahead of a key jobs
report next week and the U.S. Presidential vote in early November.
"With November Fed meeting and Presidential election approaching, we
would not be surprised to see the dollar settling into the more neutral
pattern in the coming days," analysts at Credit Agricole said in a note.
"This is particularly the case since historically the greenback tends to
weaken around one-two weeks ahead of the Presidential vote."
The euro was 0.3 percent higher at $1.0925, after slipping to an almost
eight-month low of $1.0848 on Tuesday. Against the yen, the dollar stood
flat at 104.20, not far from a roughly three-month high of 104.87 yen
struck on Tuesday.
(Editing by Andrew Heavens)
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