Australian dollar tumbles as inflation misses forecast

(Photo by Matt Cardy/Getty Images

The Australian dollar and bond yields fell after the December quarter inflation missed forecasts, adding to expectations for another rate reduction by the nation’s central bank.

A short time ago, the currency was 0.3% down at 0.7559 U.S. dollars after falling as low as 0.7547. The benchmark 10-year bond yield dropped to a session low of 2.733%. Just before the data, the Aussie was trading at 0.7588 US dollars and the 10-years paper was at 2.745%, It closed Tuesday at 2.71%

Both headline and core consumer price inflation (CPI) undershoot market expectations. The headline CPI rose by 0.5% during the quarter, below the 0.7% increase expected. It previously grew by 0.7% in the September quarter. Core inflation also undershot, rising 0.4% for the quarter. Markets had expected an increase of 0.5%. Despite the softer-than-expected quarterly outcome, upward revisions to prior data saw year-on-year rate print at 1.55%, marginally ahead of the 1.5% increase expected. The Reserve Bank of Australia has a target of 2-3% medium-term core inflation target.

A weak inflation print in March last year prompted the RBA to cut rates in May and August that pushed the cash rate to a record low of 1.5%.

The benchmark Australian stock index was little changed at 5,662 points.

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