Economy

Is the Australian Dollar set for a spell of weakness?

Is the Australian Dollar set for a spell of weakness?”

Australia's consumer price index (CPI) rose 0.6% in the September quarter, the latest Australian Bureau of Statistics (ABS) figures reveal.

But the effect of this rise was restrained by food - above all, vegetables, which fell in price by nearly 11 per cent over the quarter.

Australia's inflation rate was 0.6 per cent in the September quarter, missing economists' expectations of a 0.8 per cent rise.

As the Fed are expected to raise US interest rates again before the end of the year, the US Dollar will soon be offering similarly high interest rates, which means that investors are likely to move funds out from the Australian Dollar and into the US Dollar, which is considered a safe-haven currency.

The weaker than expected data sent the Australian dollar to a three month low of 77.17 USA cents, after trading at 77.81 U.S. cents just prior to its release. A rise in rates is now not fully priced in until November next year.

The Australian dollar slid around 0.6% following the result, which undershot expectations and poured cold water on hopes that an improved jobs market might budge the Reserve Bank of Australia out of its holding pattern on policy.

Data showed that the annual CPI rate during the July-September period fell to 1.8% from 1.9% in the previous quarter.

All other goods and services rose in price.

Economists see that trend as more of a tax on consumer spending than a sign of overheating demand, greatly lessening the need for an interest rate response by the RBA.

Paul Dales at Capital Economis said, the inflation drop was "remarkable" given these rising energy prices.

Ben Jarman, economist at JP Morgan said persistently low inflation is a further sign that global reflation is skipping Australia. "The odds are that it will stay around these levels for some time".

After months of prevarication, the government recently outlined a plan for a national energy guarantee that essentially put the onus on utilities to fix the problem.

Indeed, policy makers have repeatedly stressed they will look through the impact of energy on inflation and that any move in rates is still "some time" away.



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