Key facts
- Australian core inflation rose 0.8% in the June quarter, below forecasts.
- New dwelling prices increased 5.8% year-on-year.
- Markets significantly reduced expectations for an imminent Reserve Bank of Australia rate hike.
- The Australian dollar weakened following the inflation data.
- Bond yields fell as rate hike expectations were pared.
Australian consumer prices increased at a slower pace in the June quarter, with the trimmed mean measure of core inflation rising by 0.8% on a quarterly basis. This undershot market expectations and prompted traders to significantly reduce the probability of a near-term interest rate hike by the Reserve Bank of Australia (RBA).
While overall inflation eased, housing costs continue to be a significant factor, with new dwelling prices jumping 5.8% in June compared to the previous year. The cooler-than-expected inflation figures have narrowed interest rate differentials against the US dollar, contributing to a weakening of the Australian dollar and a rally in bonds as markets priced out further tightening.
Traders are now reassessing the RBA's policy path, with the likelihood of a rate hike pushed further into the future. This shift in expectations impacts currency markets and bond yields, reflecting a less hawkish outlook for Australian monetary policy.