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Upside Australian inflation surprise sees the Australian dollar soar

Written by Sam Coxhead on July 27th, 2011.      0 comments

11:45 AM (AEST) Earlier on today the NBNZ Business Confidence survey revealed it had slightly improved from 46.5 to 47.6. The NZD reacted to the news with a slight bid tone, as the market awaited the Australian inflation report.
The 2nd quarter Australian inflation numbers came in at .9% versus a market expectation of a .7% increase. This number saw strong demand in the AUD, and the interest rate market has moved quickly to reduce the likelihood of any cash rate cuts from the Reserve Bank of Australia in the short term. Of late the likelihood of easing had crept into the market as the domestic economy has shown further signs of slowing and the impact of prolonged levels of the high AUD exchange rate was hurting the non mining export sectors.
This inflationary pressure further muddies the outlook for the Australian economy. The AUD has set new highs against the US dollar, and has gained ground across the board, and dragged the NZD higher with it.
The stage is now set for the Reserve Bank of NZ to release its cash rate review tomorrow at 9AM NZT, in what will be one of the more anticipated meetings in a long time.
This comes in the backdrop of high levels of uncertainty surrounding the raising of the US Federal debt ceiling, which should be a foregone conclusion. More importantly is the future budget considerations that will come with the raising of the debt ceiling, and particularly how the credit agencies will react to the projections going forward. Bloomberg report that a credit downgrade would cost the US 100 billion in higher funding costs as Treasury yields would raise by 60-70 basis points over the medium term according to JP Morgan.
          Past 24 hours
  Current level Pre-AU Inflation  % Chge AU Inflation   Low High
NZD/USD 0.8747 0.8724 0.18%   0.8608 0.8763
AUD/USD 1.1056 1.0958 0.78%   1.0817 1.1057
NZD/AUD 0.7910 0.7960 -0.57%   0.7918 0.7984
AUD/NZD 1.2642 1.2563 0.57%   1.2525 1.2629
NZD/GBP 0.5318 0.5310 0.23%   0.5292 0.5339
NZD/EUR 0.6022 0.6006 0.32%   0.5989 0.6035
NZD/YEN 68.06 67.96 0.15%   67.67 68.26
NZD/CAD 0.8245 0.8235 0.21%   0.8157 0.8264