Australian dollar disrupted by low inflation, finds strength in commodities – Markets

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SYDNEY: The Australian dollar slipped on Wednesday after surprisingly weak inflation data argued for very loose policy for years to come, although soaring commodity prices helped limit losses.

The Aussie fell 0.3% to $ 0.7740 and moved away from resistance at $ 0.7815. Support costs around $ 0.7735 and $ 0.7695.

The New Zealand dollar followed with a drop to $ 0.7195, failing to maintain a five-week high of $ 0.7243 touched on Monday. Support is around $ 0.7150 / 60.

Australian consumer prices only rose 0.6% in the first quarter, while analysts expected 0.9%.

Even more surprising was the slowdown from a key average measure of inflation to an all-time high of 1.1%, far from the Reserve Bank of Australia’s (RBA) 2-3% target range.

Since core inflation has been below 2% for more than five years, it should be above 3% for a few years to reach the average target of 2.5% on average.

“Summary: The Reserve Bank will maintain its resolve and keep the cash rate at an all time high until 2024,” said Craig James, chief economist at CommSec.

The market responded by pulling 10-year bond yields down 4 basis points to 1.69%, reducing the spread against US Treasuries to 7 basis points.

“There is still slack in the labor market, so there is no sign of widespread wage pressures yet,” added James. “The RBA doesn’t expect wage pressures to emerge until the unemployment rate is closer to 4% – clearly still a long way off.”

The latest unemployment rate was 5.6% in March.

One area where there is inflation is commodity prices.

Copper has climbed 27% so far this year, as prices for iron ore, Australia’s biggest export producer, hit a record high of over $ 193 a tonne on Tuesday.

The bull run has been a boon to mining profits and tax revenues for the government, which had forecast an iron ore price of around $ 55 per tonne.

This windfall, combined with a much stronger job market, could reduce its 2020/21 budget deficit by around A $ 50 billion and reduce the need to borrow.

“We expect net debt to peak at around A $ 875 billion, up from A $ 950 billion expected at the time of the mid-year outlook (released last December),” said the ANZ market economist, Hayden Dimes.

“For 2021-2022, we could see a sharp drop in emissions from the A $ 230 billion forecast.

If the fiscal situation improves as much as we anticipate, the issuance plan will end up well below A $ 100 billion. ”


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