The benchmark S&P/ASX200 index on Wednesday finished down 68.5 points to 8,561.8, a drop of 0.79 per cent, while the broader All Ordinaries fell 58.9 points, or 0.66 per cent, to 8,816.4.
Overnight the US Bureau of Labor Statistics reported that inflation had ticked back up in June - particularly prices of goods most exposed to tariffs, such as household furnishings, appliances and apparel.
NAB head of FX research Ray Attrill said market pricing for Fed rate cuts was pared back after the consumer price index report, while bond yields and the US dollar rose.
"With risks still skewed to the upside for inflation, the Fed will likely remain on hold as it waits for more data," JP Morgan's economics team wrote in a client note.
The interest rate market's implied pricing for a Fed rate cut by September dropped to 52.5 per cent on Wednesday, from 58.9 per cent a day earlier, according to CME FedWatch.
Nine of the ASX's 11 sectors finished lower, with energy climbing 0.1 per cent and technology gaining 0.9 per cent.
Financials were the biggest mover, dropping 1.4 per cent amid falls for all of the big four banks.
NAB lost 3.4 per cent to $38.27 - its biggest daily drop since April 7 - while CBA retreated 1.2 per cent to $177.57, Westpac fell 1.5 per cent to $33.30 and ANZ dipped 0.6 per cent to $30.12.
The heavyweight mining sector dipped 1.2 per cent, with Newmont posting the worst performance in the ASX200.
The goldmining giant fell 5.7 per cent to a one-week low of $87.70 after announcing it had sold its stakes in Greatland Resources and Discovery Silver Corp for $US470 million ($720 million).
Other goldminers were also in the red even as the yellow metal traded for $US3,347 an ounce, about $10 more than Tuesday.
Northern Star slid 2.1 per cent, Genesis Minerals dropped 3.6 per cent and Evolution retreated 2.3 per cent after forecasting higher mining costs in 2025/26.
Elsewhere in the sector, BHP was down 0.7 per cent to $39.11 while Fortescue rose 0.5 per cent to $16.86 and Rio Tinto advanced 0.2 per cent to $110.52 as the world's second-biggest miner named a new CEO, Simon Trott.
Back in the financial sector, Infratil rose 4.1 per cent to a nearly two-month high of $10.28 after S&P Dow Jones Indices announced the New Zealand-based infrastructure investment company would be added the ASX200 next week, replacing Spartan Resources, which is being acquired by Ramelius Resources.
In health care, Imugene dropped 10.6 per cent to 38 cents after the cancer immunotherapy company announced a $37.5 million capital raising at 33 cents, a 22.4 per cent discount to recent trading.
The money will be used to fund a clinical trial of Imugene's potential gene therapy treatment for an aggressive type of blood cancer.
In property, Lendlease dropped 1.7 per cent to $5.09 as the property developer announced it had secured a site overlooking Sydney's Hyde Park for what will be a $2.5 billion luxury residential and retail project.
Construction on the 300-apartment development to be completed in 2030, Lendlease said.
The Australian dollar was trading for 65.25 US cents, from 65.53 US cents at close of business on Tuesday.
ON THE ASX:
* The benchmark S&P/ASX200 index finished Wednesday down 68.5 points to 8,561.8.
* The broader All Ordinaries fell 58.9 points, or 0.66 per cent, to 8,816.4.
CURRENCY SNAPSHOT:
One Australian dollar buys:
* 65.25 US cents, from 65.53 US cents at 5pm on Tuesday
* 97.03 Japanese yen, from 96.75 Japanese yen
* 56.15 euro cents, from 56.09 euro cents
* 48.66 British pence, from 48.76 pence
* 109.63 NZ cents, from 109.53 NZ cents
