Aussie Dollar Slumps as Inflation Data Dampens Rate Hike Bets

The Australian dollar slipped in value as investors reacted to the release of core inflation data for the June quarter, which came in lower than expected.

The trimmed mean measure of core inflation rose 0.8% in the quarter, below forecasts of 0.9%, and a tick under the annual pace of 3.6%. This development has largely erased investor expectations of a near-term increase in interest rates by the Reserve Bank of Australia (RBA).

The market now implies only a 2% probability of a further rate hike at the RBA's next meeting on August 11, down from 22% prior to the data. Only 11 basis points of tightening are priced in by December, from 21 basis points previously.

'We no longer expect rate hikes by the RBA this year,' said Luci Ellis, chief economist at Westpac, who had previously been looking for at least one more increase. 'Inflation has been more benign than we feared, and than the RBA forecast.'