Australian dollar undermined by rising US yields ahead of inflation test
SYDNEY, Oct 29 (Reuters) -The Australian dollar hit new 2-1/2-month lows on Tuesday as the relentless rise in U.S. yields elevated the greenback, with traders now looking ahead to local quarterly inflation data that could make or break the chance of a rate cut this year.
The Aussie AUD=D3 slipped 0.1% to hit $0.6578, the lowest level since mid-August, after falling 0.3% overnight. It is testing a key chart level of $0.6578, and resistance is heavy at the 200-day moving average of $0.6628.
The kiwi dollar NZD=D3 held at $0.5977, having bounced off a three-month low of $0.5958 overnight. It is clinging onto support at $0.5975.
Having lost 4.8% so far this month - the biggest drop since September 2022 - due to a surge in U.S. yields ahead of the U.S. presidential election, the Australian dollar could get some lift from the third-quarter consumer inflation data due on Wednesday. FRX/ US/
Analysts expect headline inflation to have eased to 2.9% last quarter, but core inflation, measured by the trimmed mean, likely rose 0.7% in the quarter to an annual rate of 3.5%.
Any upside surprises could destroy the already slim chance of a rate cut by the year end. Swaps imply just a 34% chance that the Reserve Bank of Australia can start cutting rates in December, while the first easing is most likely to come in April next year.
The Aussie AUDNZD=R is pinned near the lower end of the recent range against the kiwi at NZ$1.0993, having failed to break out the top from early October at NZ$1.1090.
It could break higher as the cross has been a popular play on the diverging rate outlook in Australia and New Zealand. The Reserve Bank of New Zealand is seen cutting more aggressively now that inflation is back in its target range. 0#RBNZWATCH
Analysts at the Commonwealth Bank of Australia already warned that they would abandon their December rate cut call if the trimmed mean measure comes in at more than 0.7%.
"The CPI outcome can indicate whether the major AUD cross rates can keep or lose the recent support from interest rate differentials," said Carol Kong, a strategist at the CBA.
Australian bonds rallied. Three-year government bond futures YTTc1 rose 3 ticks to 96.07, moving away from a three-month low hit earlier in the day. Ten-year bond futures YTCc1 also gained 3 ticks to 95.545, bouncing from a six-month low of 95.485.
Reporting by Stella Qiu; Editing by Sonali Paul
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