Australian stocks fell 0.8 percent on Wednesday after surprisingly high inflation last quarter revived the risk of a hike in interest rates and lifted the local dollar to a fresh 29-year high. Inflation accelerated to 3.3 percent on an annual basis, the fastest pace since late 2008, as food, fuel, health care, education and financial costs all rose.
"They rocked the boat," said Chris Weston, institutional dealer at IG Markets. The prospect of higher interest rates stoked the Aussie dollar's rise to more than $1.08, weighing on the profit growth prospects for a range of companies with large offshore earnings.
Trading was thin for most of the day, with investors awaiting the outcome of the US Federal Reserve's policy meeting and a media conference by Federal Reserve Chairman Ben Bernanke. With the US central bank expected to stick to its loose monetary policy for now, the US dollar is seen remaining weak, which will continue to underpin strength in the Aussie dollar and the US equity market.
"I don't see what's going to tip the boat and cause a counter-trend at the moment," Weston said. The benchmark S&P/ASX 200 index ended down 40.9 points at 4,872.9, according to the latest data. Among the banks, Westpac Banking Corp was the biggest loser, falling 1.3 percent.
Global miner BHP Billiton, the market's biggest stock, fell 1.8 percent, and rival Rio Tinto fell 0.8 percent. Retailers were hit hard by the prospect of Australia's central bank raising rates sooner rather than later. Top department store chain Myer Holdings fell 1.8 percent and David Jones slid 2.3 percent, while the top two grocers, Woolworths and Wesfarmers , fell 0.8 and 1.7 percent respectively. Blood products maker CSL dropped 0.9 percent and brewer and wine maker Foster's Group dipped 0.5 percent, facing currency headwinds. New Zealand's benchmark NZX 50 index rose 0.2 percent to close at 3,492.0.