AUD/USD edged higher following the release of building consent data on Tuesday. Australian consumer price index (CPI) data will be released on Wednesday, providing potential insights into the future direction of monetary policy from the Reserve Bank of Australia (RBA). Analysts expect Australia’s overall inflation rate to pick up slightly in the second quarter, with core inflation likely to remain stable.
The inflation report will be key to deciding whether the Reserve Bank of Australia will raise interest rates at next week’s policy meeting. However, economists have warned that raising interest rates further could jeopardize Australia’s economic recovery.
AUD/USD may limit its downside as expectations for a rate cut by the Federal Reserve in September increase and the US dollar may face challenges. In addition, signs of cooling in U.S. inflation and easing labor market conditions have led to market expectations that the Federal Reserve will cut interest rates three times this year. The Federal Reserve’s interest rate decision will be the focus on Wednesday.