RBA Rate Hike Bets Eroded as Aussie Dollar Slips on Soft Inflation Data

The Australian dollar declined by 0.4% to $0.6946 on Wednesday following the release of June-quarter core inflation data, which came in below forecasts.

This led investors to largely erase their bets on a near-term increase in interest rates from the Reserve Bank of Australia (RBA), with markets now implying just a 2% probability of a further hike at the RBA's next meeting on August 11, down from 22% prior to the data.

The inflation rate rose 0.8% in the quarter, compared to forecasts of 0.9%, while the annual pace was also a tick under at 3.6%. This has prompted some economists to revise their expectations for future rate hikes, with Luci Ellis, chief economist at Westpac, stating that 'we no longer expect rate hikes by the RBA this year'.

The softer-than-expected inflation print is likely to prompt the RBA to leave interest rates on hold at its upcoming meeting, according to Abhijit Surya, a senior APAC economist at Capital Economics. However, he notes that 'the Board will probably reiterate that it will do what it considers necessary to achieve price stability'.