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Benign CPI causes AUD to slide

Benign CPI causes AUD to slide

By Tim Waterer (Senior Trader, CMC Markets)

The CPI data today may not have gone so far as to determine the exact course and timeline of interest rates over coming months however it has saved the RBA the headache of balancing slowing growth with stubborn price pressures. Today’s low CPI print when viewed in the context of the soft labour market result last week makes the case for an RBA rate cut very justifiable, but it falls short of making potential monetary easing in February a slam dunk case. The improving global outlook perhaps eliminates some of the urgency for the RBA to cut rates again however the benign CPI undoubtedly provided more opportunity to ease if the central bank so desires.

As expected, the Australian Dollar did not take too kindly to the low CPI print with the currency losing around a third of a cent on the increased chance of forthcoming RBA rate cuts. The AUDUSD had been above 1.0560, before slipping below 1.0530. It was far from a significant sell-off in the AUD today however and the improving global outlook and rising commodity prices allowed the AUD to absorb the low inflation reading. Despite the CPI data today, 1.0620 remains a viable short term target for the AUD and much of this is down to sentiment for 2013 continuing its upward trajectory.

The ASX200 made another play for the 4800 level today courtesy of positive performances by key stocks in the materials and financial sectors. Again it was a solid if not spectacular day on the market which is a theme that seems to be re-occurring so far in 2013. BHP results were warmly received by traders however this was offset by RIO weakness and this seemed to constrain the local bourse from having a solid breakout above 4800 today. But overall it was a case of ‘steady as she goes’ with the ASX200 again edging higher.

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