The Australian dollar edged higher toward $0.64 on Wednesday, recovering some ground after losses in the previous session. The move came as investors digested fresh inflation data that slightly exceeded market expectations, offering a more nuanced outlook on monetary policy in the months ahead.

Headline inflation in Australia rose 2.4% in the first quarter, matching the pace seen in the final quarter of 2024 and coming in just above the 2.3% consensus forecast. While not a dramatic surprise, the steady inflation reading suggests that price pressures remain sticky in some areas of the economy, particularly housing and services. However, economists noted that the data doesn’t point to an acceleration in inflation, which remains within the Reserve Bank of Australia’s 2–3% target range.

Importantly, core inflation — a measure that strips out volatile items — eased more than expected, falling to 2.9% from 3.3% in the previous quarter. That decline supports growing market sentiment that the RBA has room to begin easing monetary policy as early as May. Markets are now widely pricing in a 25 basis-point cut at the upcoming meeting, which would bring the official cash rate down to 3.85%.

Looking ahead, traders are betting on additional rate cuts over the remainder of 2025, with some forecasts calling for rates to bottom out near 2.85% by the end of the year. Slowing consumer demand, rising mortgage stress, and softer labor market indicators are adding to pressure on policymakers to stimulate the economy. Meanwhile, business investment intentions have weakened, and housing activity has started to cool again after a brief resurgence late last year.

External risks are also influencing the outlook. Growing fears about the global impact of U.S. tariffs — particularly after President Trump reignited trade tensions — are weighing on business sentiment across Asia-Pacific. For the Australian economy, which is heavily reliant on exports to China and the broader region, trade-related uncertainty may become a key driver of monetary easing in the months to come.