AUD/USD falls sharply to 0.6740 as US Dollar steadies ahead of US Retail Sales

The AUD/USD pair drops sharply to 0.6740 in Tuesday’s European session. The Aussie asset declines as the US Dollar (USD) manages to get firm-footing as Federal Reserve (Fed) Chair Jerome Powell recognized the need of more soft inflation for policymakers to gain greater confidence before cutting interest rates in his speech at the Economic Club of Washington on Monday.

However, Fed Powell acknowledged that the central bank has made some progress on inflation in the second quarter. Powell said, "We've had three better readings, and if you average them, that's a pretty good place," Reuters reported. His comments on progress in disinflation fuelled confidence that rate cuts are not so far.

Meanwhile, the Fed is widely anticipated to start reducing interest rates from the September meeting. Also, traders bet that there will be two rate cuts instead of one, as signaled by officials in the latest dot plot.

Firm speculation that the Fed will start reducing interest rates from the September meeting has increased risk-appetite of investors. S&P 500 futures have posted nominal gains in European trading hours. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, steadies above 104.00.

Going forward, investors will focus on the United States (US) monthly Sales data for June, which will be published at 12:30 GMT data. The Retail Sales are estimated to have remained unchanged.

In the Asia-Pacific region, investors await the Australian Employment data for June scheduled for Thursday. Economists expect that there were 20K fresh payrolls against 39.7K onboarded in May. The Unemployment Rate is expected to have remained steady at 4.0%. Signs of tight labor market conditions would boost expectations of further policy-tightening by the Reserve Bank of Australia (RBA). Currently, investors expect that the RBA will join the global rate-cut trend next year.