Are the Australian dollar's days over?

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The Australian dollar sunk to its lowest level in over 4 months today against its US counterpart after the latest round of CPI figures and according to some, the losses may be just beginning.

Inflation figures released earlier today came in at 1.9% according to the Australian Bureau of Statistics, below analysts’ expectations for a figure of 2 percent and although the numbers didn’t miss consensus by much, they are still below the RBA’s target rate of between 2 and 3 percent which guarantees that interest rates will be kept on hold for some time to come.

This follows on from last week’s disappointing jobs figures and now the market has pushed back expectations for the next rate hike until 2019, and the chances there may actually be a rate reduction are growing by the day if inflation remains subdued.

"The Q1 inflation data will support the case that monetary policy is set to be on hold for some time to come – we continue to see the cash rate steady at 1.5% until May 2019. Focus now turns to WPI data on 16 May," says Jo Masters, a senior economist at ANZ Research, a division of Australia and New Zealand Banking Group.

Commodity prices have also been under pressure over the past few days with copper and Iron ore Australia’s biggest export, two of the victims.

This is just another reason for the RBA to keep rates on hold, which is only going to push investors towards the US dollar as the Aussie becomes less attractive as a high yielding currency.

"This pair was weighed by a number of factors including the fall in copper prices. Iron ore also came off yesterday. In addition, the focus at this point is monetary policy divergence as UST 10yr yield flirts with the 3%-level. Market players are penalizing the AUD for RBA’s reluctance to hike in this current theme of monetary policy divergence," says Saktiandi Supaat, an FX strategist at Maybank in Singapore.


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