Traders scaled back Federal Reserve rate hike expectations after July US inflation data matched forecasts, weighing on the Australian dollar.
The Australian dollar retreated against the US dollar on Wednesday, closing at 0.7061, down 0.07%. The move followed softer-than-feared US inflation data for July, which showed headline inflation easing to 3.4% from 3.5% and core inflation dipping to 2.5% from 2.6%.
Markets reacted swiftly, reducing the probability of a September Fed rate hike from 60% to 40%, according to Prime Terminal. The Reserve Bank of Australia’s mixed messaging on inflation risks and its decision to hold rates at 4.40% on August 11 also contributed to the AUD’s decline.
Ahead, Australian consumer inflation expectations for August will be released, with the prior print at 4.7%. A higher reading could pressure the RBA to consider further tightening.