FX.co ★ Australian Dollar Hits 9-Week Low

The Australian dollar slipped below $0.70 to a nine-week low after August inflation data came in softer than expected, dampening expectations of near-term interest rate hikes. The monthly CPI rose 0.4%, missing the 0.5% consensus, while annual inflation accelerated to 4% from 3.5% in July but still fell short of the 4.1% forecast.

The trimmed mean measure of core inflation increased 0.2% month-on-month, below the anticipated 0.3%. On an annual basis, however, core inflation held at 3.6% for a third consecutive month, remaining above the Reserve Bank of Australia’s 2–3% target band. That persistent overshoot was a key factor behind the RBA’s decision on Tuesday to raise the cash rate to a 15-year high of 4.60%.

Even so, the slight downside surprise in the data prompted markets to scale back the probability of another rate hike in November to 20%, from 36% prior to the release. Traders now see the next possible increase as more likely in March rather than February. The Australian dollar is on track for a monthly decline of about 2.8%, pressured by a stronger US dollar and ongoing tensions in the Middle East, which have weighed on the risk-sensitive currency.