CPI data pushes Australian dollar lower

THE Australian dollar fell more than half a US cent after the publication of softer than expected inflation data.

THE Australian dollar fell more than half a US cent after the publication of softer than expected inflation data.

Head of foreign exchange at Nomura, Kurt Magnus, said the local currency fell immediately after official inflation figures were released at 1130 AEDT.

The consumer price index (CPI), the key measure of inflation, rose by 0.6 per cent in the September quarter for an annual pace of 3.5 per cent, the Australian Bureau of Statistics said on Wednesday.

While the headline figures were consistent with market expectations, core CPI figures were lower than economists' forecasts.

Investors took this as adding to the case for a fall in the cash rate by the central bank, Mr Magnus said.
At 1200 AEDT, the Australian dollar was trading at 103.78 US cents, down from 104.56 cents on Tuesday.

Prior to the data's release at 1129 AEDT, the local currency was trading at 104.32 US cents.

"The Australian dollar's been sold off heavily against the Canadian dollar and the Kiwi in particular,'' Mr Magnus said.

"This is based on commodity currencies being similar, and the interest rate trade being outstanding.''

Meanwhile, European leaders were continuing talks on a solution to the region's debt crisis.

Investors had been hoping that more details on a European rescue package would be announced by eurozone leaders on Wednesday (European time) but that was increasingly looking unlikely.

Mr Magnus said the Australian dollar may trade as low as 102.50 US cents in the coming days as investors worry about the outcome of the European talks.

Since 0700 AEDT on Wednesday, the currency has traded between 103.69 and 104.37 US cents.

Meanwhile, the Australian bond market saw a modest rise on the back of the CPI data, according to Mr Magnus.

"People are shifting out of cash and using cash to invest in cheap equity stocks or good value.''

At 1200 AEDT on Wednesday, the December 10-year bond futures contract was trading at 95.580 (implying a yield of 4.420 per cent), up from 95.460 (4.540 per cent) on Tuesday.

The December three-year bond futures contract was at 96.250 (3.750 per cent), up from 96.070 (3.930 per cent) previously.