AUD Slumps on Softer Inflation, Rate Hike Odds Plummet

Australia's inflation rate has surprised markets by falling to its lowest level in four months, according to recent data. In June, prices unexpectedly dropped by 0.1% month-over-month, while the consensus had expected a 0.2% increase.

This development has significantly adjusted market expectations for an August interest rate hike by the Reserve Bank of Australia (RBA). The probability of such a decision is now seen as having only a 4% chance, down from over 20% just yesterday and as high as 30% on Monday.

Volkmar Baur from Commerzbank notes that while services and non-tradable inflation remain elevated, he expects rates to stay unchanged in August. He sees no further interest rate hikes this year, implying continued pressure on the Australian Dollar (AUD).