TOKYO  - The Australian dollar tumbled to a six-week low on Wednesday as soft domestic inflation reinforced prospects of monetary easing, while the U.S. dollar hovered near a 22-month high against its peers on after strong U.S. housing data further eased concerns towards the world's biggest economy.

The Aussie was down 0.9 percent at $0.7040 after brushing $0.7031, its lowest since March 11.

The antipodean currency tumbled after data on Wednesday showed Australia's headline consumer price index (CPI) come in flat in the January-March quarter, below forecasts for an 0.2 percent increase and the lowest since early 2016.  

The Reserve Bank of Australia (RBA) has recently opened the door towards monetary policy easing, and Wednesday's weak inflation reading increased views that the central bank would cut the key interest rate from an already record low of 1.5 percent.

"The weak CPI heightens the prospect of RBA cutting rates at its May 7 meeting," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.

"Higher commodity prices usually support the Aussie, but rate cut prospects are outweighing such positive factors," Sera said.

The Aussie is a commodity-linked currency that is also usually sensitive to shifts in risk sentiment.

Crude oil prices rallied to six-month peaks this week, while the S&P 500 and Nasdaq reached record high closings overnight.

The dollar index versus a basket of six major currencies stood at 97.660 after rising to 97.777 overnight, its highest since June 2017.

U.S. data on Tuesday showing sales of new single-family homes jumped to a near 1-1/2-year high in March added to recent positive readings in retail sales and exports.  

The euro, which has the largest weighting within the dollar index, was down 0.15 percent at $1.1212 after shedding 0.25 percent the previous day.

"The European economy looks particularly weak relative to the U.S. economy and this highlights the euro's weakness," said Takuya Kanda, general manager at Gaitame.Com Research.

"The United States is now expected to have experienced firm growth in the first quarter, reinforcing the dollar's strength relative to the euro."

U.S. first quarter GDP data on Friday could strengthen the case that while the current period of global expansion is in its late stages, the United States is on a firmer footing compared with other leading economies.  

The dollar was steady at 111.885 yen after suffering mild losses overnight, weighed down by a decline in long-term Treasury yields.

The Canadian dollar extended overnight losses and slipped to a seven-week low of C$1.3457 per dollar amid expectations that the Bank of Canada (BoC) would forgo language pointing to further interest rate hikes.

Canada's central bank is expected to hold its benchmark interest rate steady at a policy meeting later on Wednesday. A Reuters poll showed that the central bank is expected to stand pat until the beginning of 2020 at the earliest. 

(Editing by Jacqueline Wong and Richard Borsuk) ((shinichi.saoshiro@thomsonreuters.com; Reuters Messaging: shinichi.saoshiro.reuters.com@reuters.net +813-6441-1774))