The Australian dollar declined after slower-than-expected inflation in the last quarter strengthened bets for the Reserve Bank to pause again next week.
AUD/USD fell as much as 0.5% to 0.6572. Leveraged selling of the Aussie dollar after weaker-than-expected inflation data was soaked up in part by bids attached to 0.6580/90 option strikes, according to Asia-based FX traders.
Traders are now pricing in a 70% chance of a RBA rate cut in June, up from about 50% on Tuesday, and fully pricing an August move.
The inflation data is probably noisy enough for the RBA to regard the small downside surprise on core inflation as consistent with their earlier plan to keep rates steady for some time, says Sean Callow, Sydney-based senior currency strategist at Westpac.
USD/JPY slid 0.1% to 147.47 as JGB futures dropped in reaction to the Bank of Japan's summary of opinions from the January policy meeting, which fueled speculation the central bank will end its negative-rate policy in the near-term.
Price action in both pairs may signal turning points in monetary policy, with further narrative to come from the Federal Reserve's policy decision later Wednesday.
The Bloomberg Dollar Spot Index was little changed after edging lower for a third day. The policy-sensitive Treasury two-year yield lost about two basis points to 4.32%.
The Federal Open Market Committee is expected to stand pat on rates; investors will be listening for clues from Fed Chair Jerome Powell on timing for the commencement of policy easing.
Source: Bloomberg
