Aussie dollar firmly lower in late afternoon trade

The local unit has extended losses booked on the back of lower-than-expected inflation data.

Consumer prices put a dampener on the local unit. Picture: istock

The Australian dollar weakened on Wednesday on news of lower-than-expected inflation in the fourth quarter.

Economists said it kept alive the prospect of interest rate cuts in 2017, although the Reserve Bank of Australia won’t be rushing to cut rates when it meets next in early February.

Consumer prices rose by 0.5 per cent in the fourth quarter and were up 1.5 per cent from a year earlier, the Australian Bureau of Statistics said on Wednesday. Economists had expected consumer prices to rise by 0.7 per cent in the quarter and by 1.6 per cent from a year earlier.

At 4.35pm (AEDT), the Australian dollar was at US75.40 cents, compared with US75.83c late on Tuesday.

Core inflation, which is more central to policy making at the RBA, rose by an average of 0.4 per cent in the quarter, compared with 0.5 per cent expected by economists.

Higher fuel prices, domestic vacations and the cost of buying a house contributed to the rise in consumer prices during the quarter. They were partly offset by weaker prices for international travel and the cost of soda drinks.

Weak inflation outcomes throughout 2016 led the RBA to cut interest rates twice, taking its cash rate target down to a record-low 1.50 per cent.

The inflation report confirms that annual core inflation is well entrenched below the floor of the RBA’s 2 per cent to 3 per cent target range, says Su-Lin Ong, senior economist at RBC Capital Markets.

Still, “there is no trigger to exercise that bias anytime soon, but that may well change as the year unfolds, especially if inflation proves stubbornly low,” she added.

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