Australian shares traded to a high of 7071 following a rally on Wall Street after inflation surprised on the downside.
Falling gas prices drove the rate down, offsetting rising food prices and shelter costs.Investors betting the single-month data point could represent peak inflation tumbled into the markets, pushing up indices and lowering bond yields on the expectation that the US Federal Reserve would now be less hawkish with future rate rises.
Financial markets are now pricing in a 50 per cent chance of a 75 basis point interest rate increase at the next US Federal Reserve in September, compared to a 75 per cent chance before the release. “The Fed themselves may even have breathed a small sigh of relief, but they will also be the first to remind the market that the job is in no way done and they will be looking for at least a couple more similar results before feeling comfortable that inflation is moving in the right direction.”
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