AUD Slides as Softer Inflation Data Dampens Rate Hike Bets

The Australian Dollar (AUD) declined against major peers on Tuesday following the release of softer-than-expected domestic inflation data.

Australia's monthly Consumer Price Index (CPI) indicator rose 3.4% in the year to January, below market forecasts of 3.6%, and marked a slowdown from the 3.8% annual pace recorded in December 2024.

The core measure, the trimmed mean, also eased to 3.8% from 4.0%. This led to a repricing of interest rate differentials, as traders now see a lower likelihood of the Reserve Bank of Australia (RBA) maintaining a hawkish stance relative to other central banks.

'The market was already pricing in a very slim chance of a hike, but this data essentially extinguishes that,' said a senior currency strategist at a Sydney-based bank. The focus now shifts to how quickly the RBA might start cutting rates later this year, which is negative for the Australian Dollar in the near term.