Why the Australian Dollar Fell on Weak Inflation
Australian dollar falls by more than 1%
The Australian dollar–US dollar pair tested 0.71 levels on October 28, 2015, as there was heavy pressure on the currency pair. The strengthening US dollar on the FOMC comments and the falling inflation at the Australian domestic front compounded this pressure. The pair went to a low of 0.708 before closing the day at 0.712, which was a fall of 1.1%. Similar negativity occurred in the New Zealand Dollar, which fell 0.93% on October 28. 2015.
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Consumer inflation falls to 0.5%
Consumer inflation rose by 1.5% on an annual basis in the third quarter of 2015 compared to the same level in the previous quarter. The growth in prices came in below expectations of 1.7%. On a monthly basis, consumer prices increased 0.5% in the third quarter against 0.7% in the previous quarter and a forecast of 0.6%. The fall in inflation levels opens doors for the RBA (Reserve Bank of Australia) to cut interest rates below the current levels of 2%.
Impact on the market
Australian ETFs were on a negative trend with the iShares MSCI Australia ETF (EWA) falling 0.82% on October 28, 2015. The fall in the Guggenheim CurrencyShares Australian Dollar Trust (FXA) was more compounded at 1.4%.
The Australian ADRs (American depositary receipts) trading in US markets were also on a negative trajectory. BHP Billiton (BHP) fell by 0.70%. In the mining sector, British-Australian multinational Rio Tinto (RIO) was also trading with a negative bias and had a sharp fall of 0.84%. Benitec Biopharma (BNTC) had a significant fall of 3.5% on October 28.