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Australian Dollar Loses Ground As 2017 Inflation Fails to Meet Expectations


The Australian dollar lost 0.07 percent to reach 1.7517 per pound on Wednesday after suffering a bigger loss to 1.7567 per pound earlier today, a level last seen on January 26.


Consumer prices increased in Australia by 0.6 percent in the fourth quarter of the last year, according to today’s figures from the Australian Bureau of Statistics. The increase matched that of the third quarter but fell short of expectations of a 0.7 percent gain as costs of electronic devices and hotel accommodation decreased.


On a yearly basis, the consumer price index rose 1.9 percent in 2017 from 1.8 percent in 2016. The minor gain failed to push the index into the range that the Reserve Bank of Australia targets when making changes to its monetary policy.


Core consumer prices, which exclude the most volatile items to better highlight underlying inflation trends, lagged in the fourth quarter to end the year on a weak note. The Australian central bank preferable range for 12-month inflation is between 2 percent and 3 percent, which core inflation has missed for two consecutive years.


The Reserve Bank of Australia has maintained interest rates at 1.5 percent since 2016, and today’s consumer prices data support the case for keeping the rates without a change for longer. The earliest interest hike to 1.75 percent that investors priced in may not happen until December, compared to November ahead of today’s release.


A separate report from Australia’s central bank revealed weak private sector credit in December, which added to the weight on the Australian dollar today. The total credit provided by financial institutions in the country increased by 0.3 percent last month to miss estimates of a 0.5 percent increase.


Investors are now anticipating commentary that will come out of the Reserve Bank of Australia after it decides the latest update to its monetary policy next Tuesday, despite their certainty that the update will contain no change.