Weakness in iron ore and oil prices weighed on the Aussie,
amid wider risk aversion as regional U.S. banks remained under
pressure.
Markets are also scaling back the chance of further rises in
the 3.6% cash rate from the Reserve Bank of Australia (RBA)
after core inflation moderated in the first quarter.
Futures now imply just a 10% chance of a hike at the RBA's
May meeting next week, and only a slightly higher probability of
a move by August. Rate cuts are expected from February next
year. Of the four major local banks, CBA and Westpac have been
tipping one final hike in May, while ANZ sees the RBA pausing,
but with further tightening likely later in the year as service
inflation stays high.
NAB analysts believe 3.6% will be the peak, though see a
risk the RBA board could go for a final May hike.
Goldman Sachs also sees no hike next week, but expects
increases in July and August as wages keep rising and booming
migration fuels a rebound in the housing market.
The indecision in part reflects hawkish-sounding minutes of
the RBA board's April meeting that showed members were worried
inflation would not decrease quickly enough to prevent a
price-wage spiral.
"The debate around the cash rate appears to have morphed
from whether inflation has peaked to the forward pace of
decline, and how long it will take for inflation to return to
inside the 2% to 3% target band," said Nomura economist Andrew
Ticehurst.
"Accordingly, we believe that the probability of a 25bp hike next week is greater than that currently implied by the market, but is still below 50% in our view." (Reporting by Wayne Cole; Editing by Jamie Freed)
Messaging: wayne.cole.thomsonreuters.com@reuters.net))