Australian Dollar consolidates ahead of RBA rate call; traders eye US inflation data

The Australian Dollar (AUD) trades with a slightly negative tone against the US Dollar (USD) on Monday, with AUD/USD holding steady above the 0.6500 level as investors brace for Tuesday’s Reserve Bank of Australia (RBA) monetary policy decision. Markets are fully pricing in a 25 basis point cut to 3.60%, with attention focused on the central bank’s forward guidance and updated economic forecasts, which will shape the next leg for AUD/USD.

At the time of writing, the AUD/USD pair is trading around 0.6513, trimming some part of its intraday losses. Meanwhile, the US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, is staging a modest recovery from a two-week low, hovering near 98.50 ahead of Tuesday’s key US inflation data.

The RBA held the cash rate unchanged at 3.80% in its last meeting in July after two consecutive cuts earlier in the year. The RBA’s reasoning for the hold was a cautious approach to inflation and global economic uncertainties, particularly with new tariffs from the United States. The board was divided on the decision, with a majority of six members voting to hold and three voting for a rate cut.

The latest data show Australia’s annual headline inflation eased to 2.1% in Q2, while the trimmed mean measure slowed to 2.7%, comfortably within the RBA’s 2-3% target band. A softer labour market backdrop adds to the case for further easing, with June’s Unemployment Rate ticking up to 4.3% and total hours worked declining. Retail sales posted a modest rebound in June, up 1.2% after a 0.5% rise in May, though household demand is still muted.

The RBA’s policy tone will be the key driver for the AUD/USD in the near term. A straightforward 25 bps cut paired with a cautious, data-dependent outlook may limit downside pressure on the Aussie, especially given the currency’s already heavy speculative short positioning. According to the latest Commitment of Traders (COT) report, non-commercial net shorts in AUD/USD rose to -83.6K contracts in the week ending August 5. This positioning leaves the pair vulnerable to a short-covering rally if the RBA delivers a less dovish message than markets expect.

On July 24, Governor Michele Bullock reiterated the RBA’s “dual mandate” of achieving price stability and full employment, stressing that while easing is likely, the pace will depend on confirming evidence from inflation and labour data.

From the US side, this week’s inflation data will also shape sentiment toward the Greenback. The Consumer Price Index (CPI) on Tuesday and the Producer Price Index (PPI) on Thursday will be watched closely, as markets are currently pricing in an 88% probability of a 25 basis point rate cut by the Federal Reserve in September, following July’s soft labor market data. A hotter-than-expected CPI or PPI reading could dampen expectations for aggressive easing and lending support to the USD, while softer prints may reinforce dovish bets and cap upside in the Greenback.