AUD/USD drops below 0.6350 as US Dollar clings to intraday gains

• AUD/USD falls slightly below 0.6350 as the US Dollar performs strongly on the Fed's 'higher for longer' interest rate stance.
• The RBA cut its OCR by 25 bps to 4.10%, as expected, but guided a cautious interest rate cut stance.
• RBA Bullock said that the battle against inflation is far from over.

The AUD/USD pair is down a little over 0.1% below 0.6350 in Tuesday's North American session. The Aussie pair faces pressure as the US Dollar (USD) holds onto intraday gains driven by firm expectations that the Federal Reserve (Fed) will keep interest rates in the current range of 4.25%-4.50% for a longer period.

The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, rises to near 107.00.

Fed officials have guided that interest rates should remain at their current levels, given that inflation is still elevated, labor demand is balanced and the United States (US) economic growth is resilient. For more cues on the monetary policy outlook, investors will focus on the Federal Open Market Committee (FOMC) minutes, which will be released on Wednesday.

Meanwhile, the Australian Dollar (AUD) underperforms after the Reserve Bank of Australia's (RBA) monetary policy outcome, in which the central bank announced its first interest rate cut decision since November 2020. The RBA cut its Official Cash Rate (OCR) by 25 basis points (bps) to 4.10%, as expected.

Investors had already anticipated a 25-bps interest rate reduction as inflationary pressures in the Australian economy have been easing. RBA Governor Michele Bullock guided that the central bank will remain cautious on interest rate cuts as it is too early to declare victory over inflation.