Australian CPI Eases Rate-Cut Expectations

Australian shares broke a six-day winning streak Wednesday as higher-than-expected domestic CPI data damped hope of further interest rate cuts from the Reserve Bank of Australia, and regional shares suffered from concern about bad loans in China. Financial stocks bore the brunt of the pullback, and AGL Energy suffered from a profit warning. BHP Billiton remained strong.

While the local bourse initially benefited from expectations of sustained U.S. monetary stimulus after a disappointing U.S. non-farm payrolls report on Tuesday, it reversed course Wednesday after the CPI data exceeded expectations.

“I’ve been in the camp of no more interest rate cuts for some time, mainly due to the strength in the property market,” says Justin Gallagher, Sydney-based head of sales trading at CIMB. “I think the CPI data puts rate cuts completely out of the picture until the new year and even then it will be unlikely baring an international crisis.”


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