Economy

Australia's first quarter inflation surprisingly soft

Did the Aussie dollar overreact to inflation data?
VIDEO3:3703:37
Did the Aussie dollar overreact to inflation data?

Australia's inflation data came in softer than expected in the first quarter, lowering the prospect of a potential rate hike and sending the Aussie dollar tumbling.

The consumer price index (CPI) rose 2.9 percent in the first quarter from the year-ago period, data showed on Wednesday, lower than the 3.2 percent a Reuters poll had forecast.

The CPI rose 0.8 percent on a month-on-month basis, compared to a Reuters forecast for a 0.6 percent rise.

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The Australian dollar fell three-quarter of a percent against the U.S. dollar on the news, to as low as $0.9294, but has rebounded slightly at $0.9302.

A customer browses through an electrical goods retail store in Sydney.
Torsten Blackwood | AFP | Getty Images

According to Todd Elmer, currency strategist at Citi, the fall in the Aussie does not mark a shift for the currency, which has been strengthening in recent months.

"I don't think there's a lot of new information [in the inflation data]; the market was not pricing in much risk for interest rate tightening as we look out later in the year so this just really confirms not much pressure on the RBA [Reserve Bank of Australia] to change rates anytime soon. So, I don't think this is going to shift trends [for the Aussie dollar]," he said.

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After a drubbing last year, the Australian dollar is up 4.15 percent against the greenback so far this year, bolstered by improving outlook for the economy.