AUD/USD steady as Powell strikes cautious tone, focus shifts to Australia CPI

• AUD/USD holds steady as markets turn cautious ahead of Australia’s Monthly CPI release.
• The US Dollar eased slightly after Powell’s cautious remarks on monetary policy.
• Economists expect Australia’s August CPI to rise 2.9% YoY, up from 2.8% in July.

The Australian Dollar (AUD) remains virtually unchanged against the US Dollar (USD), with the AUD/USD pair consolidating near 0.6598 on Tuesday. A modest dip in the Greenback following Federal Reserve (Fed) Chair Jerome Powell’s speech has done little to alter the pair’s direction, with attention now firmly turning to Australia’s Monthly Consumer Price Index (CPI) due on Wednesday.

Powell signaled a cautious stance on Tuesday, noting that the Fed’s 25 basis point cut last week brought monetary policy closer to neutral but that it remains “modestly restrictive.” He stressed that there is no risk-free path for monetary policy, warning that cutting too aggressively could allow inflation pressures to re-emerge, while maintaining tight policy for too long could unnecessarily weaken the labor market.

The US Dollar Index (DXY), which measures the Greenback's value against a basket of six major peers, is trading around 97.26, down slightly on the day but steady overall. Markets are reassessing the Fed’s outlook after Powell’s remarks, with the central bank signaling a willingness to respond flexibly as data evolves rather than committing to a preset path of rate cuts.

Market attention is now shifting to the upcoming Australian inflation release, a key data point that could shape the Reserve Bank of Australia’s policy outlook. Economists expect the August CPI to rise slightly to 2.9% YoY from 2.8% in July. July’s data already showed signs of renewed price pressures, led by housing costs, food prices, and increases in alcohol and tobacco, while the trimmed mean inflation measure rose to 2.7% and the index excluding volatile items climbed to 3.2%.

The Reserve Bank of Australia has eased policy by 75 basis points so far this year, lowering the cash rate to 3.60%, but policymakers continue to stress a data-dependent approach. Governor Michele Bullock has acknowledged that inflation has returned to within the 2-3% target band, yet she cautioned that risks remain two-sided.

A firmer CPI print would reinforce concerns over sticky services inflation and could complicate the case for additional near-term easing, lending support to the Aussie. Conversely, a softer reading would validate the disinflation trend and keep the door open for further easing later this year if growth slows.