The benchmark S&P/ASX200 index fell 37.5 points, or 0.56 per cent, to 6,649.6 on Tuesday, with the broader All Ordinaries down 35 points, or 0.51 per cent, to 6,853.
"It's soggy," said Tiger Brokers Australia chief strategy officer Michael McCarthy. "It's interesting to note the daily trading range is compressing in the Australian market.
"We really are trapped between two differing ideas - one is that the Australian share market is likely to outperform in downturns and in the current economic environment, because of our commodities exposures.
"Against that, of course, is the concerns about high inflation, particularly given the data we saw last in the US, inflation increasing at a 9.1 per annum rate."
The market didn't react much to a hawkish speech by Reserve Bank Deputy Governor Michele Bullock, who said most Australian households were well-placed to deal with rising interest rates.
CSL was the biggest drag on the market on Tuesday, with the blood products giant falling 2.0 per cent to $290.66 as the US dollar weakened.
BHP was down 1.0 per cent to $36.61 after a fourth-quarter operations update, with softer-than-expected iron ore, nickel and coking coal volumes.
Rio Tinto gained 0.5 per cent to $95.71 and Fortescue added 0.7 per cent to $17.01.
In the banking sector, Macquarie dropped 3.3 per cent to $167.6 but most of the big retail banks were higher.
Westpac added 0.7 pre cent to $20.30, CBA climbed 0.8 per cent to $94.95 and NAB rose 1.5 per cent to $29.42.
ANZ remained in a trading halt for its $3.5 billion capital raising to fund its acquisition of Suncorp's banking arm.
Pendal rose 7.8 per cent to $4.43 after confirming it was in high-level talks with rival fund manager Perpetual about a potential transaction. Perpetual fell 1.8 per cent to $28.88.
The energy sector was up 2.5 per cent as Brent crude prices rose for a second day. Woodside was up 3.6 per cent to $32.43.
Coalminers had another strong day following Whitehaven Coal's stellar earnings report on Monday.
Whitehaven rose 5.3 per cent to an all-time high of $6.21, while New Hope added 3.5 per cent to a 10 year high of $4.45.
JB Hi-Fi rose 2.2 per cent to a five-week high of $41.76 after the electronics retailer said total sales for fiscal 2022 were up 3.5 per cent to $9.2 billion, with unaudited net profit after tax growing 7.7 per cent to $544.9 million.
"The benefits of having a strong multichannel strategy were especially evident in the second half as COVID-19 restrictions eased and customers returned to shopping in-store, whilst continuing to shop with us online," said group CEO Terry Smart.
Melbourne-based Neuren Pharmaceuticals gained 5.9 per cent to $4.14 after its US partner, Acadia Pharmaceuticals, asked the US Food and Drug Administration to approve its potential treatment for Rett syndrome, a rare neurodevelopmental disorder in girls.
The Australian dollar had moved higher against its US counterpart, which was flagging after weeks of strength. The Aussie was buying 68.60 US cents, from 67.30 US cents at Friday's close.
ON THE ASX:
* The benchmark S&P/ASX200 index on Tuesday closed down 37.5 points, or 0.56 per cent, at 6,649.6.
* The broader All Ordinaries dropped 35 points, or 0.51 per cent, to 6,853.
CURRENCY SNAPSHOT:
One Australian dollar buys:
* 68.60 US cents, from 67.30 US cents at Monday's close
* 94.56 Japanese yen, from 94.34 yen
* 67.39 Euro cents, from 67.37 cents
* 57.24 British pence, unchanged
* 110.74 NZ cents, from 110.64 cents
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