Aussie Drops on PPI Reading - 23.7.2012

The Australian Bureau of Statistics reported the nation’s producer prices, a preliminary indicator of inflation, rose in the second quarter by 0.5%, after a 0.3% drop. The annual growth pace slowed down from 1.4% to 1.1%. The Reserve Bank of Australia cut its benchmark interest rate, the cash rate, by 50 points in May and 25 points in June to support the economy. The Australian dollar depreciated against the greenback in May by 8.5%, but recovered by the end of July.

The next policy meeting is on August 7. According to market participants, the probability of further target rate cut to 3.25%, derived from swaps trading, exceeds 80%. CPI data reading on Wednesday may shed more light on possible central bank’s action. The aussie may remain under pressure versus the greenback this week on signs of weakening inflation. The pair fell today to 1.0277 from last week's high of 1.0443.