Australian shares pare losses after softer core inflation cools rate-hike bets

Australian shares pared losses on Wednesday afternoon after a key trimmed mean measure of core inflation indicated price pressures may not be as bad as feared, prompting traders to slightly dial back May rate hike bets.

The S&P/ASX 200 was trading 0.1% lower, or 7.4 points, at 8,703.30 points, as of 0228 GMT after falling as much as 0.6% earlier.

The benchmark was on track for a seventh straight day of losses. Australian consumer prices surged in the first quarter as war in the Middle East drove up energy costs, but the key trimmed mean measure of core inflation, which excludes the most volatile items like fuel, came in under forecasts.

“Petrol prices have fallen in recent weeks back to near pre-conflict levels, which means the Reserve Bank of Australia could potentially look through this month’s inflation spike and opt to keep rates on hold when they meet next week,” Tony Sycamore, analyst at IG, said.

“The chances of such a dovish outcome while remote would significantly improve if there were more concrete signs of progress to reopen the Strait of Hormuz between now and next Tuesday.”

Swaps indicate a 75% chance of a rate hike at the central bank’s May 5 meeting, lower than 86.1% just before the inflation data was released. Most major sectors trimmed losses too: financials were last down 0.3% after losing as much as 0.7%, while miners were down 0.9% from the earlier 1.8% loss.

Real estate and discretionary stocks rose to around 0.5%. Meanwhile, energy stocks extended gains, adding 1.6% on firmer oil prices.

Oil major Woodside climbed as much as 1.8% after posting a quarterly operating revenue beat. In New Zealand, the S&P/NZX 50 index traded largely unchanged at 12,762 points.