Aussie Falls As Soft Australia Inflation Data Signals RBA Rate Cut

(RTTNews) - The Australian dollar weakened against other major currencies in the Asian session on Wednesday, as softer Australian inflation data signaled a potential interest rate cut by the RBA in February.

The Reserve Bank of Australia or the RBA has maintained the Official Cash Rate (OCR) at 4.35 percent since November 2023, stating that any rate reduction cannot be contemplated until inflation has "sustainably" returned to its goal range of 2% to 3%.

Data from the Australian Bureau of Statistics showed that Australia's consumer price inflation eased in December to the lowest since early 2021 on falling electricity and auto fuel prices.

Consumer prices logged an annual increase of 2.4 percent in the December quarter, following a 2.8 percent rise in the preceding period. This was the lowest rate since March 2021.

On a quarterly basis, the consumer price index rose 0.2 percent, the same pace of growth as seen in the September quarter.

The statistical office also released the December monthly CPI indicator today, which rose 2.5 percent on a yearly basis in December, which was faster than the 2.3 percent rise in November.

Traders remain cautious ahead of the U.S. Fed's interest rate decision later in the day.

The Fed is widely expected to leave interest rates unchanged, but traders will pay watch for the accompanying statement for clues about the outlook for rates.

Recent economic data has led to concerns about the Fed leaving rates on hold for a prolonged period, but many economists still expect the central bank to resume cutting rates sometime in the first half of the year.

CME Group's FedWatch Tool is currently indicating a 74.5 percent chance rates will be lower by at least a quarter point following the Fed's June meeting.

In the Asian trading today, the Australian dollar fell to a 2-day low of 96.81 against the yen and a 4-week low of 1.6751 against the euro, from yesterday's closing quotes of 97.25 and 1.6680, respectively. If the aussie extends its downtrend, it is likely to find support around 95.00 against the yen and 1.69 against the euro.

Against the U.S., the Canada and New Zealand dollars, the aussie dropped to an 8-day low of 0.6227, a 1-week low of 0.8971 and a 1-month low of 1.1006 from Tuesday's closing quotes of 0.6252, 0.9004 and 1.1038, respectively. The aussie may test support near 0.60 against the greenback, 0.88 against the loonie and 1.09 against the kiwi.

Looking ahead, the European Central Bank is slated to issue euro area monetary aggregates for December at 4:00 am ET. M3 is expected to rise 3.9 percent annually after a 3.8 percent rise in November.

In the New York session, U.S. mortgage approvals data, goods trade balance for December, retail and wholesale inventories data for December and U.S. EIA crude oil data are slated for release.