Australian shares have snapped a five-day winning streak while the local currency rallied after higher-than-expected inflation figures quashed hopes for a pause in central bank rate hikes.
The benchmark S&P/ASX200 index settled 22.1 points, or 0.30 per cent lower, at 7,468.3 by close on Wednesday. It had earlier dropped nearly 0.5 per cent after the inflation data was released.
The broader All Ordinaries closed 22.5 points lower, or 0.29 per cent, at 7,688.
"Today's figures will not come as welcome news for investors, who have enjoyed a New Year rally based on cooling sentiment around inflation and China's reopening," said Dylan Zhang, equities analyst at online broker Stake.
"The higher than expected headline figure confirms that inflationary pressures have not peaked, so we can expect rate hikes to continue or even increase."
Data from Australian Bureau of Statistics earlier on Wednesday showed annual inflation rose 7.8 per cent in the December quarter, the highest increase in the consumer price index since 1990.
Economists had expected a price rise of 7.6 per cent on an annual basis.
The surprise lift pushed the Australian dollar up to a five-month high of 71.09 US cents. By 1700 AEDT, the local currency was trading at 71.03 US cents.
Markets are now leaning towards a quarter-point hike from the Reserve Bank of Australia next month.
"Australia's CPI data showed momentum continued to build in domestically driven inflationary pressures in Q4. This cements a 25 basis point cash rate hike in February and supports our view of another 25 basis point hike in March," ANZ economist Catherine Birch said.
The RBA raised its benchmark cash rate eight consecutive times in 2022, from a record low of 0.1 per cent to a decade high of 3.1 per cent.
Technology, mining and energy stocks were the worst-affected on Wednesday while consumer discretionary and utilities gained ground. Financial stocks dropped initially, but reversed course as traders priced in prospects of expanding interest margins.
Technology shares that had seen gains all this week backtracked the most with ASX-listed shares of payment giant Block and software provider Xero dropping nearly 3.0 per cent. Link Market Services fell nearly 2.0 per cent and Computershare slipped close to 1.0 per cent.
Energy stocks rose earlier after Woodside posted record production in the December quarter, but tumbled following the inflation numbers and an overnight drop in the oil price. Woodside, Santos and Beach Energy all recorded declines of more than 1.0 per cent.
Mining shares also endured a rocky session with BHP, Rio Tinto and Fortescue Metals all losing ground. Goldminers were the worst performers in the sector, particularly after top producer Newcrest Mining reported weak quarterly gold production, pushing its shares down nearly 2.0 per cent.
The heavyweight financials sector contributed to the partial rebound in the benchmark, with ANZ the only bank among the Big Four to close in negative territory.
ON THE ASX:
* The benchmark S&P/ASX200 index settled 22.1 points, or 0.30 per cent lower, at 7,468.3 by close on Wednesday.
* The broader All Ordinaries closed 22.5 points, or 0.29 per cent lower, at 7,688.
One Australian dollar buys:
* 70.40 US cents, from 70.40 US cents at Tuesday's ASX close
* 92.61 Japanese yen, from 91.60 Japanese yen
* 65.18 Euro cents, from 64.70 Euro cents
* 57.65 British pence, from 56.82 pence
* 109.53 NZ cents, from 108.13 NZ cents.