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Australian dollar up on CPI figures
Published on 22.04.2015 14:38

The Australian dollar is trading higher today after the release yesterday of the latest CPI numbers but some analysts say the figures won’t be enough to stop the RBA slashing rates in the foreseeable future.

AT 11.20am (GMT) the Aussie dollar was trading at US77.95c up from US77.09c in yesterdays close.

Iflation rose 0.2 per cent in the March quarter bringing the yearly rate to 1.3 per cent, well below the RBA’s target range of between 2 and 3% and making it the lowest level in almost three years, leaving the door open for the central bank to cut rates..

The main culprits in the dismal number was cheaper petrol, fruit and vegetables, clothing and furniture.

JP Morgan Australia chief economist Stephen Walters said poor growth, rising unemployment, falling commodity prices and a dollar that’s too high for thr RBA’s liking will eventually see them drop rates sooner rather than later.

"Even without the addition of icing today, the rate cut cake already had been baked, in our view," he said.

"Whether the bank delivers it as soon as next month remains an open question." He added

Citing a rate cut in May, analysts from Citi group noted the following points on why we may see a move in May,

  • Headline inflation well below the 2% to 3% target
  • Core still in the bottom half of the target range
  • As such, inflation is no barrier to cut rates further
  • Note that quarterly underlying inflation is also slightly slower than the pace recorded at the time of the February RBA rate cut
  • Expect a cut in May 

Analysts are pricing in around a 50% chance that the RBA will cut interest rates in May, down from over 60% before the release of the inflation numbers.


Andrew Masters

Analyst

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