Australian Dollar Drops on Interest Rates Outlook

The Australian dollar fell today on the speculation the revised method of the inflation calculation will cause the central bank to refrain from raising the interest rates. The Australian Bureau of Statistics changed its method of calculating the inflation of the consumer prices. The new method may show the consumer prices grew last quarter less than was previously estimated. Joaquin Vespignani, economist at Barclays, predicted that the Reserve Bank of Australia will have to reduce its inflation forecast and said:

This implies the RBA will have more reason to keep monetary policy unchanged for the rest of this year.

According to the Credit Suisse Index, investors are betting the RBA will cut its key interest rate by 155 basis points in the next 12 months, compared to the forecast of 140 basis points yesterday. The relatively high interest rates attracts carry traders to Australia, bolstering the nation’s currency. The prospect for an interest rate decrease reduces potential profit from such trades and, as a result, appeal of the Aussie. AUD/USD dropped from 1.0284 to 1.0239 today as of 2:18 GMT. EUR/AUD rose from 1.3368 to 1.3395. AUD/JPY went down from 78.80 to 78.54.