Australian Dollar Slips on Soft Inflation Data, Rate Hike Odds Plummet

The Australian dollar weakened by 0.4% to $0.6946 as June-quarter core inflation came in below forecasts, reducing expectations of a near-term increase in interest rates.

The Reserve Bank of Australia (RBA) had been looking for core inflation of 3.8%, but the actual figure was 3.6%. This has led investors to largely erase wagers on a rate hike at the RBA's next meeting on August 11, with markets now implying only a 2% probability of further tightening.

Westpac chief economist Luci Ellis stated that they 'no longer expect rate hikes by the RBA this year' due to the benign inflation readings. However, she also noted that there is still a risk of a hike in November if inflation picks up again in Q3.

The Australian 3-year bond futures jumped by 10 ticks to 95.540, while 10-year bond yields fell 7 basis points to 4.902% following the inflation report.