The Australian dollar found support on Wednesday despite concerns over new U.S. tariffs. While inflation in Australia continued to ease, the latest data did not significantly impact expectations for future rate cuts.
Australia’s consumer price index (CPI) remained steady at 2.5% annually in January, matching forecasts. However, the core inflation measure, known as the trimmed mean, increased slightly to 2.8%. This report focuses mainly on goods rather than services, where inflation pressures are more concentrated.
One positive sign came from the housing sector, a key driver of inflation. Rent prices and new dwelling costs both cooled, indicating a possible decline in inflationary pressures.
Market analysts see the current inflation trend as a reason for the Reserve Bank of Australia (RBA) to cut rates in May. The core inflation rate is expected to slow to 2.8% this quarter, down from 3.2% in the previous quarter. This aligns with the RBA’s 2-3% target range.
Despite this, markets suggest only a small chance of a rate cut at the RBA’s April 1 meeting. The probability of an easing in May stands at around 70%.
The Australian dollar traded slightly lower at $0.6336, having found support at $0.6320. It remains below the 100-day moving average of $0.6396, with major support at $0.6279. The New Zealand dollar (NZD) also remained stable, holding at $0.5720, with resistance at $0.5772 and support at $0.5675.
A weak U.S. consumer confidence report released on Tuesday increased concerns about an economic slowdown. As a result, U.S. Treasury yields dropped sharply.
Local Australian bond yields followed the trend. The three-year futures contract rose to a two-week high at 96.240, while 10-year bond yields fell by four basis points to 4.330%.
With Australian yields now four basis points above U.S. yields, the gap has reversed from the 17 basis points below seen just weeks ago.
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