AUD/USD steadies above 0.6500 as traders eye Australia CPI, Fed decision

• Austrailan Dollar weakens for fourth straight session, with AUD/USD briefly dropping below 0.6500 before recovering during American trading hours.
• The Aussie draws limited support from US-China trade talks, with any extension of the tariff pause still hanging in the balance ultimately depending on US President Donald Trump's decision.
• Australia's Q2 CPI due Wednesday expected to show further cooling, trimmed-mean CPI seen steady at 0.7% QoQ, annual core inflation easing to 2.7%.

The Australian Dollar (AUD) stays under pressure for the fourth day in a row against the US Dollar (USD) on Tuesday, as the Greenback continues to gain strength. A fresh trade deal between the United States (US) and the European Union (EU) struck on Sunday has helped ease global trade tensions, boosting demand for the US Dollar.

At the time of writing, AUD/USD is trading near 0.6515 during the American session, reversing some of its intraday losses after briefly dipping below the key 0.6500 psychological mark earlier in the day.

The Aussie also draws some support from ongoing US-China trade negotiations. Top officials from both countries wrapped up a two-day meeting in Stockholm, where they agreed to maintain the current tariff pause and keep communication open ahead of the August 12 deadline. While no breakthrough deal was announced, the constructive tone helped ease fears of renewed trade tensions, offering a modest lift to broader market confidence. However, traders remain cautious as any final extension still requires approval from US President Donald Trump, keeping uncertainty in play.

China's top trade negotiator Li Chenggang said both sides will "continue to push forward an extension of the pause of reciprocal tariffs as well as Chinese countermeasures," signaling intent to avoid escalation. Meanwhile, US Treasury Secretary Scott Bessent warned that if President Donald Trump does not approve the extension, tariffs on Chinese goods could "boomerang back to April 2nd levels or another level that he chooses."

Looking ahead to Wednesday, markets face two major catalysts: Australia's Q2 Consumer Price Index (CPI) and the US Federal Reserve's (Fed) monetary policy decision.

Australia's Q2 inflation data, due early Wednesday, is expected to show a further cooling in price pressure, reinforcing expectations of an interest rate cut in August by Reserve Bank of Australia (RBA) . The headline Consumer Price Index (CPI) is forecast to rise 0.8% QoQ, easing from 0.9% in Q1, while the annual rate is seen slipping to 2.2% YoY from 2.4%. The monthly CPI for June is projected to hold steady at 2.1% YoY. Meanwhile, the RBA's preferred trimmed-mean CPI -- a key measure of core inflation -- is expected to hold steady at 0.7% QoQ, with the annual rate easing slightly to 2.7% YoY from 2.9%. A downside surprise could cement expectations for a rate cut at the August 12 meeting, with money markets already pricing in a nearly 90% chance of a 25 bps cut. However, if inflation comes in hotter than expected, the RBA may delay cutting rates, which could give the Aussie Dollar a temporary lift.

In the US, the Fed is expected to hold rates steady at 4.25%-4.50%. The focus will be on Fed Chair Jerome Powell's tone. With inflation still above target and economic data showing resilience, Powell may reinforce the "higher for longer" stance, supporting the US Dollar. However, a more dovish signal especially with global trade risks easing could revive bets on a September rate cut, which markets currently price at around 60-65%.