Australian dollar slips, bonds jump as inflation quashes rate risk

The key trimmed mean measure of core inflation rose 0.8% in the quarter, compared to forecasts of 0.9%, while the annual pace was also a tick under at 3.6%.

That would be a relief for the Reserve Bank of Australia which had looked for core inflation of 3.8% in the quarter. It has raised interest rates three times this year to 4.35% in an effort to eventually get inflation back down to its target band of 2% to 3%.

"The softer-than-expected quarterly trimmed mean inflation print will probably prompt the RBA to leave rates on hold at its upcoming meeting," said Abhijit Surya, a senior APAC economist at Capital Economics.

"But with cost pressures still elevated and the energy crisis far from resolved, the Board will probably reiterate that it will do what it considers necessary to achieve price stability."

RBA Governor Michele Bullock on Tuesday reiterated that rates might yet have to be raised again should inflation not cool as hoped, though she also noted softness in the housing and labour markets.