The Australian dollar bounced on Wednesday after a reading on domestic inflation proved not to be as weak as bears had wagered on, forcing a spurt of short covering. The Aussie got a helping hand from a further sharp rise in prices for iron ore, a major export earner for Australia and a big driver of mining profits and tax revenue. Chinese iron ore futures jumped nearly 6 percent on Wednesday to hit their daily upside limit, after Brazil's Vale SA said it was cutting output following a deadly tailings dam disaster.

All of which lifted the Aussie 0.5 percent to $0.7191, and away from Tuesday's trough of $0.7138. Resistance now lies at $0.7204 and $0.7235. The New Zealand dollar was relatively flat at $0.6835, having failed to clear resistance around $0.6872 earlier in the week. Australian government bond futures eased on the inflation news, with the three-year bond contract off 5 ticks at 98.245. The 10-year contract fell 2.5 ticks to 97.745, as the yield curve steepened.

New Zealand government bonds fared better, with yields down around 1 basis point across the curve. Australian data showed consumer prices rose 0.5 percent in the December quarter and 1.7 percent for the year, to slightly top forecasts. Core inflation was much as expected at an annual 1.8 percent, completing the third straight year under the Reserve Bank of Australia's (RBA) 2-3 percent target band.

Copyright Reuters, 2019