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Dollar holds onto gains

money, piggybankThe Australian dollar has managed to hold on to most of Wednesday’s gains following stronger than expected inflation data.

At 0700 AEST on Thursday, the local currency was trading at 77.55 US cents, down from 77.78 cents on Wednesday.

The Australian dollar rallied on Wednesday after official figures showed underlying inflation rose 0.6 per cent in the March quarter for an annual rate of 2.35 per cent, which was slightly higher than expected.

The figures dampened some expectations of a rate cut in May, with market pricing for a cut next month falling to a 50/50 chance.

The Australian dollar was also supported by a bounce in iron ore prices, National Australia Bank senior economist, David de Garis, said.

“To our eyes, the data continue to provide scope for a further interest rate cut, but do not of themselves pressure the RBA to cut rates further,” de Garis said.

“The broad suite of core and analytical CPI series suggests inflation running closer to the middle of the RBA’s target range than at the lower end, which the bank would likely read as a sign that the economy is not weakening substantially at the present time.”

The figures also put an end to the Australian/New Zealand dollar “parity party celebrations”, de Garis said, pushing parity out of reach for the time being.

AAP

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