By James Glynn and James Ramage
The Australian dollar rose to its highest level in two weeks
against the U.S. dollar and the yen Wednesday after inflation data
dented investors' expectations that Australia's central bank would
cut interest rates before 2015.
The Aussie, as the currency is called, climbed 0.7% against the
dollar, to $0.9457, while it gained 0.7% versus the yen to ¥95.99,
marking the strongest levels against both since July 10.
Consumer prices in the second quarter rose 0.5% from the first
and increased 3.0% from a year earlier, the Australian Bureau of
Statistics reported Wednesday. Core inflation, which strips out
extraordinary events such as the price effects of extreme weather
or new taxes, rose 2.8% from a year earlier, putting it close to
the top of the central bank's 2% to 3% target.
The uptick in inflation lowers expectations for the Reserve Bank
of Australia to cut the country's cash rate, which sits at 2.5%,
the second highest among developed markets behind New Zealand, at
3.25%. The high interest rates have made the currencies popular
with investors who can borrow money at a lower rate in the U.S. and
Japan, exchange the currency and then invest it in Australia and
New Zealand.
"Vocal opposition to the strength of the Aussie has been toned
down recently," said Omer Esiner, chief market analyst at the
currency brokerage Commonwealth Foreign Exchange Inc. "And coupled
with the higher CPI reading, it limits the risk for an RBA rate cut
by year-end."
The RBA cut interest rates to a record low 2.5% almost a year
ago to buttress the economy against falling mining investment and a
rise in unemployment. So far, the tonic has helped house prices
rise sharply. But since the central bank's rate cut on Aug. 7, the
Aussie has gained 5.2% against the greenback. A strong Australian
dollar and falling commodity prices are acting as brakes on
growth.
Many economists believe Australia's economy will recover more
broadly in 2015. "Interest rates are on hold for the time being,
but we still see higher rates next year," said Kieran Davies, chief
economist at Barclays Australia.
In other activity, the dollar gained 0.1% against the yen on
light trading, to ¥101.52, while the euro remained unchanged, at
$1.3461.
-- Write to James Glynn at james.glynn@wsj.com and James Ramage
at james.ramage@wsj.com