Inflation Miss Rocks Australian Markets, Boosting Rate Cut Bets

(Bloomberg) -- Australia’s dollar fell, while stocks and bonds rallied as inflation data missed estimates to further fuel speculation of an interest-rate cut by the central bank.

The Aussie dropped as much as 0.9 percent, the most in a month, to 70.36 U.S. cents. Yields on the three-year bond slid 14 basis points to a record 1.29 percent. Australia’s stock benchmark extended its gain, rising as much as 1.1 percent to it highest in more than 11 years.

“Given the importance of the CPI data to the RBA and their recent comments on inflation, we will see further pressure on the Aussie over the next few sessions,” said Nick Twidale, chief operating officer at Rakuten Securities Australia Pty. London traders may continue selling the Aussie below 70 U.S. cents, he said.

Inflation Miss Rocks Australian Markets, Boosting Rate Cut Bets

The inflation data miss, with first-quarter prices stagnant, adds to other signs of a slowing economy that has been sapped by a property market slowdown and the U.S.-China trade war. Speculation the Reserve Bank of Australia will cut rates has increased since February when influential Westpac Banking Corp. Chief Economist Bill Evans made the forecasts for lower interest costs.

The trimmed mean gauge, a key core inflation measure, rose 0.3 percent in the first quarter from the prior three months, missing the 0.4 percent predicted by economists. Headline inflation was flat, compared with the 0.2 percent estimates.

“The inflation numbers will now increase the pressure on the RBA to consider cutting interest rates from 1.50 percent given the central bank is a formal inflation targeter,” said Mansoor Mohi-uddin, head of currency strategy at NatWest Markets.

©2019 Bloomberg L.P.