Australian Producer prices for Q2 of 2010 printed much lower than expected coming in at 0.3% versus forecasts of 0.8% tempering speculation that the RBA will raise rates at its next meeting in August. Producer prices rose at annual rate of 1.0% versus 1.5% projected with gains lead by higher construction and dairy costs, but partially offset by motor vehicle and parts manufacturing. Despite the softer than expected data, this was still the largest rise in PPI since Q2 of 2009.
Attention now turns to Australian CPI data due Wednesday at 1:30 GMT. The market anticipates a 3.0% reading which is slightly lower than the 3.1% print from the period prior but still above the 2.0% RBA preferred target. However, if today's PPI data is indicative of moderating price pressures in Australian economy and the CPI results prove to be less that 3.0% the market expectations of an August rate hike will be pared back considerably.
The Aussie rose to .8975 in pre news trade but consequently fell below .8950 on the disappointingly low PPI figures. One other factor weighing on the currency is the dramatic narrowing of the gap in the polls ahead of the Australian election on August 21 st . The latest polling revealed that the Labor Party's lead has compressed to only 4 points (52% vs. 48%) vs. the opposition Coalition party from a comfortable 10 point margin in the wake of the debate between the parties leaders last night.
Despite these obstacles the Aussie may still climb to challenge the .9000 barrier later in the day if risk flows prove constructive as European markets react to the positive results of banking stress tests. However, given the weaker PPI and the political uncertainty any move past .9000 is likely to be capped for now.
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