Dollar lower at noon, bonds firm on CPI

THE dollar was weaker at noon after lower than expected inflation data appeared to dash the chances of an interest rate rise.

THE dollar was weaker at noon after lower than expected inflation data appeared to dash the chances of an interest rate rise in the coming months.

At midday (AEDT), the local unit was trading at US99.36c, down from US99.86c yesterday.

Since 7am, the dollar traded between US99.81c and US99.28c.

During the trading day, the Australian Bureau of Statistics said the inflation rate slowed to 0.4 per cent in the December quarter, for an annual rate of 2.7 per cent.

Meanwhile, the interest rate sensitive underlying measure came in at 0.4 per cent quarter on quarter, and 2.3 per cent year on year, well inside the Reserve Bank of Australia's target of two to three per cent.

"We saw a rather subdued CPI (consumer price index) print come in this morning, so that saw the Aussie fall about 40 pips (two fifths of a US cent)", CMC Markets foreign exchange dealer Tim Waterer said.

"Traders are pricing out the potential for a rate hike this quarter.

"But there's still a chance it will happen in the first half of the year."

The central bank took the cash rate higher four times in 2010, from 3.75 per cent to its current 4.75 per cent.
Mr Waterer said he expected traders would look to Asian share markets for their lead during the rest of today's local trade.

Meanwhile the bond market was firmer at noon.

At noon on the ASX 24, the March 10-year bond futures contract price was 94.395 (implying a yield of 5.605 per cent), up from yesterday's close of 94.360 (5.640 per cent).

The March three-year bond futures contract price was 94.850 (5.150 per cent), up from 94.780 (5.220 per cent).