24/JAN/2012 Dollar slips ahead of inflation data
The Australian dollar edged off three-month highs on profit taking on Tuesday, with market attention turning to local inflation data which could set the stage for further interest rate cuts.
The Aussie was last at $US1.0491, having pared all its overnight gains after investors, mostly Asian central banks and a US-based hedge fund, booked profits in thin trading. Most of Asia is closed for the lunar new year holiday.
The Aussie had rallied as far as $US1.0575 offshore, its highest since October 31, after investors wagered a Greek debt deal would eventually be sealed.
A media report citing Portugal could be in need of a second bailout to repay 9 billion euros of debt due in September also clouded risk sentiment during the Asian session.
Still, the trend remains positive for the Aussie, which has displayed remarkable resilience this month even in the face of soft jobs data at home and a salvo of euro zone ratings downgrade.
It has gained nearly 3 per cent this year and after six days of higher lows, the charts suggest the move upwards is still on track.
"In the short-term, the uptrend will probably continue," said Robert Rennie, chief currency strategist at Westpac, citing improving data from the US and efforts from the European Central Bank's massive three-year lending plan for banks.
"But I find it hard to argue for the Aussie to stay above $US1.0550 without some positive developments."
Australia's consumer price inflation (CPI) report for the fourth quarter is due on Wednesday and a benign reading would set the stage for a further cut in interest rates.
Forecasts are for annual underlying inflation of 2.4 per cent, well within the Reserve Bank's target band of 2.0 to 3.0 per cent. Such an outcome would cement expectations for an interest rate cut at the central bank's Feb 7 policy meeting.
Interbank futures already imply a 64 per cent chance of a 25 basis point-easing next month, with rates of 4 per cent fully priced in by March.