The Australian dollar was an outperformer on Wednesday, bucking a broad risk-averse environment in global markets, helped by a higher-than-expected inflation reading that dented chances of an interest rate cut in the near term.
Consumer prices rebounded by more than forecast last quarter in Australia, while the annual pace of core inflation edged up for the first time in more than a year, leading investors to price out almost any chance of a cut in rates next week.
The Reserve Bank of Australia holds its monthly policy meeting early next week and is expected to keep rates at a record low 1.5%.
The Aussie jumped to $0.7709 from $0.7645 before the data. It was last up 0.5% on the day at $0.7685 and rose to a three-month high against the lower-yielding yen. The safe-haven yen performs well during weakness in stock markets as was the case on Wednesday, but the momentum was clearly in favor of the higher-yielding Australian dollar.
"The headline inflation was stronger than expected and it looks like a November rate cut is off the table," said Yujiro Goto, currency strategist at Nomura.
"While there are expectations lurking of further rate cuts early in the next year, at the moment we could see some more upside in the Aussie."
Meanwhile, the dollar index, which tracks the greenback against six major rivals, shed 0.2% to 98.492 after rising as high as 99.119 on Tuesday, its highest level since February 1.
The U.S. currency has been bolstered by expectations the Fed is on track to raise rates by the year-end. The market was pricing in a greater than 78% chance that the Fed would raise rates in December, according to CME Group's FedWatch.
The focus will be on third-quarter growth data to be released on Friday but traders expect the dollar to trade in a range ahead of a key jobs report next week and the U.S. Presidential vote in early November.
"With November Fed meeting and Presidential election approaching, we would not be surprised to see the dollar settling into the more neutral pattern in the coming days," analysts at Credit Agricole said in a note.
"This is particularly the case since historically the greenback tends to weaken around one-two weeks ahead of the Presidential vote."
The euro was 0.3% higher at $1.0925, after slipping to an almost eight-month low of $1.0848 on Tuesday. Against the yen, the dollar stood flat at 104.20, not far from a roughly three-month high of 104.87 yen struck on Tuesday.