AUD Sinks as Softer Inflation Unwinds RBA Hike Bets

The Australian dollar (AUD) has sunk to its lowest level since July as softer inflation data unwound bets for a Reserve Bank of Australia (RBA) interest rate hike in November. The RBA's preferred measure of underlying price pressures, trimmed mean inflation, rose by 0.2% in August, short of the expected 0.3%. This has led to a significant unwind in hawkish RBA pricing, with the implied probability for a 25 basis point hike at the next meeting on November 3 now sitting at just 20%, down from 44% last week.

The inflation data showed that while headline CPI rose 0.4% for the month and 4.0% over the year, it was still short of expectations. The annual rate of trimmed mean inflation remained unchanged at 3.6%. However, the monthly trimmed mean increase was a relatively high 0.24%, suggesting that inflation is still rising.

The RBA's Governor Michele Bullock had expressed concerns about policy settings being restrictive in her press conference following the bank's interest rate decision on Tuesday. This has added to the view that high inflation and tighter monetary policy may be curbing consumer demand, evident in a separate report showing household spending was flat in August.