Australian dollar plunges as country slips to deflation first time in 7 years

AUD/USD dropped 1.8% on the day to 0.7605 from the previous close of 0.7748.

The Australian dollar plummeted on Wednesday (27 April) as data showed quarterly inflation rate fell below zero for the first time in 7 years in the country.

AUD/USD dropped 1.8% on the day to 0.7605 from the previous close of 0.7748.

The recent rally in Aussie dollar that has taken it to a 10-month high last week was a worrying factor for the Reserve Bank of Australia which has been scrambling to shore up growth and inflation in the country.

At the low on Wednesday, the Aussie dollar was down 3% from the multi month high of 0.7836 hit on 19 April.

Consumer prices in Australia unexpectedly dropped 0.2% on a quarterly basis in the three months to March, after a 0.4% increase in the December quarter.

The March number marked the first negative reading since the fourth quarter of 2008.

The year-on-year rate also dropped in the first quarter, to 1.3% from 1.7% in Q4-2015.

The Australian Bureau of Statistics said the fall in the CPI this quarter was broad based, with six out of the eleven CPI groups recording a fall for the quarter.

The most significant price falls this quarter were automotive fuel which plunged 10.0% and fruit prices that dropped 11.1%.

The lowest ever inflation rate recorded in Australia was in the fourth quarter of 1953 when prices fell 1.54%, historical records show.

The drop in the Australian dollar was across the board. It dropped more than 2% against the euro to 1.4884/euro and by the same margin to 1.9203 against the UK pound.

Given the downside risks to global growth and Chinese demand,the Aussie dollar should continue to be under pressure but rising iron ore prices may prevent sharper slide in the currency, strategists said.