AUD/USD slumps to near 0.6560 as US Dollar gains ground

• AUD/USD falls sharply to near 0.6560 as the US Dollar extends its recovery.
• RBA's Bullock remains wary of interest rate cuts until she gets evidence that inflation will sustainably return to the 2.5% target.
• Investors await Australian Q2 CPI data and the Fed's monetary policy.

The AUD/USD pair trades 0.45% lower to near 0.6560 during the European trading session on Friday. The Aussie pair faces a sharp selling pressure as the Australian Dollar (AUD) underperforms its peers, except the Japanese Yen (JPY), even as Reserve Bank of Australia (RBA) Governor Michelle Bullock emphasized keeping inflation sustainably to its 2.5% target over monetary policy expansion.

On Thursday, the comments from RBA Bullock in a speech to the Anika Foundation signaled that the central bank is wary of reducing interest rates until it gets enough evidence that inflation will sustainably return to the 2.5% target, The Guardian reported.

For fresh cues on the interest rate outlook, investors await the Q2 Consumer Price Index (CPI) data, which is scheduled to be released on Wednesday. In the first quarter, price pressures rose at a steady pace of 2.4%.

On the global front, investors will pay close attention to trade talks between the United States (US) and China, which are scheduled for next week in Stockholm. The impact of US-China trade talks is expected to be significant on the Australian Dollar, given that the Australian economy relies heavily on its exports to China.

Meanwhile, a further upside move in the US Dollar (USD) has also weighed on the Aussie pair. The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, jumps to near 97.70. The Greenback attracts bids on the hopes that the US and the European Union (EU) will reach a trade agreement before the August 1 tariff deadline.

Going forward, the major trigger for the US Dollar will be the Federal Reserve's (Fed) monetary policy announcement on Wednesday.