Daily Morning Report 26.10.2016

The Australian dollar rose on Wednesday after data showing a stronger than expected rebound in domestic inflation in the last quarter quashed expectations for a near-term interest rate cut by the country’s central bank.

AUD/USD hit highs of 0.7709 and was last at 0.7702, up 0.73% for the day.

Official figures showed that Australia’s consumer price index rose 0.7% in the third quarter, compared to expectations for an increase of 0.5%.

Annual inflation rose by 1.3%, up from 1.0% in the second quarter and ahead of forecast of 1.1%.

The annual rate of underlying inflation also edged up, rising to 1.6% from a record low of 1.5%.

Underlying inflation rose 0.4% from a month earlier.

Subdued inflation readings in the first and second quarters prompted the Reserve Bank of Australia to cut interest rates in May and August, bringing interest rates to a record low 1.5%.

The Aussie was also higher against the yen and the New Zealand dollar, with AUD/JPY up 0.63% to 80.20 and AUD/NZD climbing 0.55% to 1.0731.

NZD/USD was slightly higher at 0.7174.

The greenback backed away from nine-month peaks hit overnight, but continued to be underpinned by expectations for a near-term interest rate hike.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was last at 98.57, after hitting highs of 99.09 overnight, its highest level since February 1.

The index has rallied more than 3% so far this month as hawkish remarks by Fed officials in recent weeks solidified expectations for a rate hike before the year’s end.

Expectations for higher interest rates typically boost the dollar by making the currency more attractive to yield-seeking investors.

The Fed’s next meeting is in November, but a rate hike ahead of the presidential election is seen as unlikely.