The Australian dollar slipped below $0.695, hitting its weakest level in two weeks after softer inflation data tempered expectations of further interest rate increases. Headline inflation unexpectedly eased to a four-month low of 3.8% in June, down from May’s reading and below forecasts of 4.0%. On a monthly basis, consumer prices fell 0.1% for the second consecutive month, contrary to expectations.
The closely watched trimmed mean inflation rate rose 3.6% year-on-year, slightly under the 3.7% consensus, while quarterly core inflation increased 0.8%, also missing forecasts. Although inflation remains above the RBA’s 2%–3% target band, markets sharply reduced the implied probability of another rate hike this year to about 50%, from over 90% prior to the data release.
The weaker figures strengthened the view that the central bank is unlikely to resume policy tightening at its August 11 meeting. Even so, the RBA governor has recently cautioned that another rate increase may still be required to bring inflation back to target.
