Article by ForexTime
The Australian dollar tumbled as much as 1.3 per cent after the Australian economy indicated it had its first bout of deflation in more than seven years, according to CPI data.
Data showed headline inflation contracted 0.2 per cent quarter-on-quarter in the first three months of this year, down from a 0.4 per cent pace in the December quarter and well below expectations for a 0.2 per cent gain. It was the first quarterly contraction since the final three months of 2008. The annual pace of headline inflation slowed to 1.3 per cent. The Reserve Bank of Australia has an inflation target of 2 to 3 per cent.
The soft inflation data is leaving the Reserve Bank of Australia more scope to ease policy should it want to resume that course, with some underlying measures of inflation rising the slowest levels in almost two decades.
The RBA left rates on hold at its latest meeting following two cuts last year and its latest set of policy meeting minutes indicated that its monetary policy was “very” accommodative. This suggests there is room for further rate cuts if necessary.
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