The Australian dollar fell as a slower-than-expected rise in consumer prices in the fourth quarter stoked the case for another interest rate cut.
Consumer prices rose 2.2 per cent in the fourth quarter from a year earlier and 0.2 per cent from the third quarter, the Australian Bureau of Statistics said today.
Economists had expected a 2.4 per cent rise from a year earlier and an increase of 0.4 per cent from a quarter earlier.
Core inflation, which cuts out extraordinary price moves, was also tame, giving the Reserve Bank of Australia scope to cut its policy interest rate from its current level of 3.0 per cent if the economy weaken.
At 4.20pm AEDT, the Australian dollar was buying $US1.0534, down from $US1.0553 late yesterday and below a session high of $US1.0573.
But economists said there is unlikely to be a rush by the RBA to further slash rates, and it might keep the key rate unchanged at 3.0 per cent at the next policy meeting on February 5.
"We doubt, however, that this result will get the RBA Board across the line to ease in February," said Adam Boyton, chief economist at Deutsche Bank.
A recent strong rise in iron ore prices, a major component of Australia's export basket, might well stay the hand of the central bank, Mr Boyton said.
A survey of 18 economists by the Wall Street Journal today confirmed the low expectation of a cut in February - 13 out of 18 economists expect no change in the RBA's key rate.
Market pricing for a rate cut rose only slightly over the day from around 33 per cent to 38 per cent.
Beyond Australia, the next hurdles for the Australian dollar is expected to be the ongoing budget crisis in the US with the US House of Representatives expected to debate a temporary extension to the government's debt limit later today.