Dollar rallies after inflation figures

DOLLAR surged after release of strong local inflation figures but gains were capped over Chinese manufacturing data concerns.

THE dollar surged after the release of strong local inflation figures but its gains were capped because of concern about the upcoming release of Chinese manufacturing data.

At 12pm AEDT today, the Australian currency was trading at 102.94 US cents, still down from 103.19 cents yesterday.

After the release of the inflation figures, the dollar went as high as 103.06 US cents.

The headline consumer price index (CPI) rose 1.4 per cent in the September quarter, for an annual rate of 2.0 per cent.

Easy Forex currency dealer Anthony Botros said the numbers had come in a little bit better than the market had forecast.

"So, that's pared some bets that the RBA (Reserve Bank of Australia) will cut further in November," he said. "The Australian dollar's rally has been limited as the market focuses on the Chinese HSBC PMI (Purchasing Managers' Index) that are due very shortly."

Mr Botros said investors were sceptical that the October Chinese PMI, which measures manufacturing activity, would show a strong outcome.

During the offshore session tonight, European October manufacturing data will be released and the outcome of the US Federal Reserve's two-day policy meeting will be announced.

"There are a lot of event risks that the market is focusing on," Mr Botros said. "If the Chinese numbers show some lagging and if there is a bit more concern about the euro zone, that will limit any further risk of the Aussie dollar going higher."

Mr Botros said the dollar had not sustained its rallies in October because of a selling surge when it moved towards 103.40 US cents.

He said he expected that would continue.

Meanwhile, Australian bond futures prices were lower at noon. At 12pm AEDT today, the December 10-year bond futures contract was trading at 96.880 (implying a yield of 3.120 per cent), down from 96.900 (3.100 per cent) yesterday. The December three-year bond futures contract was at 97.430 (2.570 per cent), down from 97.470 (2.530 per cent).