Australian consumer price figures prompt dollar falls

Wednesday 27th October 2010

Australia’s consumer prices rose less than expected in the third quarter, dousing expectations interest rates will rise anytime soon and sending the nation’s currency lower.

The consumer price index gained 0.7% in the three months ended Sept. 30, compared to the second quarter, according to the Australian Bureau of Statistics. Prices rose at an annual pace of 2.8%, the lowest since the fourth quarter of 2009. Economists forecast a quarterly rate of 0.9%, for an annual 2.9%.

The Australian dollar tumbled to as low as 97.42 U.S. cents after the figures were released, from 98.55 cents immediately before report on speculation the Reserve Bank will keep its target rate unchanged when it announces its next review on Nov. 2. The currency has been a stellar performer, reaching parity with the greenback this month, on the back of sturdy economic growth and higher yields.

The kiwi dollar climbed to 76.64 Australian cents from 75.87 cents immediately before the announcement

Tepid inflation “will make it very difficult for a bank that deferred in October to raise rates in November,” said Bill Evans, chief economist at Westpac Banking Corp. “The FX market moved too quickly to take the interest rate premium out” of the Australian dollar.

Evans said the biggest ‘downside’ surprises were in the food group, which shed 0.5% against expectations of a 0.8% increase, and financial and insurance services, which rose 0.5%, less than a third of the forecast 1.7% gain.

Clothing and footwear was markedly stronger than expected at 1.4% versus a forecast 0.2% drop, and household contents and services with a 0.8% gain against a forecast 0.3% decline.

Reserve Bank Governor Glenn Stevens, who aims to keep inflation within a 2%-to-3% range on average, has kept the benchmark lending rate at 4.5% for five straight meetings.

The central bank’s core inflation measure, known as the trimmed mean gauge, climbed 0.6% in the latest quarter for a 2.5% annual pace.

Businesswire.co.nz

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