The Australian dollar got a much-needed lift on Wednesday as data showed inflation blew past all expectations last quarter, narrowing the odds on a rate rise as early as next week.
The impact was limited, however, as investors have already priced in a whole series of rate hikes from the Reserve Bank of Australia (RBA) and, in any case, are more concerned about Chinese lockdowns and sinking stock markets.
As a result, the Aussie was still left limping at $0.7150 AUD=D3 , having shed 1.3% for the week and 4.3% on the month. Support lies around $0.7086/95, but there is a real risk of returning to its January lows around $0.6968.
The kiwi dollar slid to a three-month trough of $0.6570 NZD=D3 , bringing its losses for the month to 5.3%. That left it uncomfortably close to the January low of $0.6531 and a break would take it to depths not seen since late 2020.
It was notable the kiwi has got no lift from higher local rates with the Reserve Bank of New Zealand having already hiked four times to 1.5% and promising more ahead.
The Australian inflation figures did suggest some risk the RBA could hike at its May 3 meeting rather than wait until July as many had expected.
Consumer prices rose at an annual pace of 5.1% in the first quarter, while core inflation accelerated to its fastest pace since early 2009 at 3.7%.
That took inflation above the RBA's 2%-3% target band and ended years of undershooting, making it hard to justify keeping interest rates at emergency lows of 0.1%.
"Trimmed mean inflation is now higher than at the start of any tightening cycle since the full-fledged launch of inflation targeting in the early 1990s," said Marcel Thieliant, a senior economist at Capital Economics.
He still thought the RBA would wait until June to hike, but then possibly go all the way to 0.5% in a single move.
Futures
0#YIB: shifted to price in a rate of 0.20% for May, implying a better-than-evens chance of a hike next week. The June contract also slid to almost fully price in a rate of 0.50%, whether in one step or two.Rates were now seen reaching 2.5% by the end of the year, and 3.5% late in 2023.
However, that still lags pricing for the U.S. Federal Reserve, with futures tipping half-point rises in May and June, and perhaps July as well.
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