Dollar falls after subdued inflation data

THE Australian dollar is higher despite falling a third of a US cent after the release of lower-than-expect inflation figures.

THE Australian dollar is higher despite falling a third of a US cent after the release of lower-than-expect inflation figures.

At 12pm AEST today, the local unit was trading at 102.45 US cents, up from 102.33 cents yesterday. Just before the inflation figures were released at 11.30am AEST, the local currency was 102.75 US cents, and fell to an intraday low of 102.37 cents immediately afterwards.

The consumer price index (CPI), a key measure of inflation, rose 0.4 per cent in the March quarter, for an annual rate of 2.5 per cent. It was right in the middle of the Reserve Bank of Australia's two to three per cent inflation target band, allowing scope for the central bank to cut the cash rate, if needed, to boost economic growth.

Commonwealth Bank currency strategist Joseph Capurso said cash rate reductions nearly always put downward pressure on the Australian dollar but added that he expects the Australian dollar to bounce back. He said the weak consumer price rises might give retail spending a boost, reducing the need for an interest rate cut.

"What these CPI numbers would suggest is demand may not be that weak when you combine it with strong retail figures," he said. "So, I don't think the RBA will be in a hurry to cut rates next month, and I suspect, it will take a while for it to sink in though."

Mr Capurso said that there was plenty of buyers for the Australian dollar at its current low levels.

"The 102.20 US-cent level was a pretty good level of support and that's held in the last few days and I don't think it will get down there tonight.

"I suspect the Aussie will push up a little bit higher."

He said he expected the Australian dollar to trade in a range between 102.30 US cents and 102.80 cents this afternoon.

At 12pm AEST today, the June 10-year bond futures contract was trading at 96.890 (implying a yield of 3.110 per cent), up from 96.865 (3.135 per cent) yesterday. The June three-year bond futures contract was at 97.420 (2.580 per cent), up from 97.380 (2.620 per cent).