RBA Hike Bets Trimmed as Australia Inflation Comes in Lower Than Expected

Australia's inflation rate came in lower than expected, leading traders to revise their bets on interest rates. The consumer price index (CPI) rose 0.6% in the second quarter from the previous period, after jumping 1.4% in the first quarter. Annual CPI eased to 4.0% from 4.1%, and core inflation undershot forecasts at 3.6%.

The Australian dollar fell 0.3% to $0.6953, while three-year government bond yields declined 10 basis points to 4.482%. Markets pared back the chance of an interest rate increase next month to just 4%, from 21% previously, while a hike this year is priced at 50%.

Harry Murphy Cruise, head of economic research for Oxford Economics Australia, said 'all that backs up our view that the RBA will keep rates on hold next month'. Underlying inflation is not resisting pressure to rise, but in quarterly terms, it's continuing to ease.