Australian Dollar rises toward 0.6500 as US Dollar weakens

• The Australian Dollar recovers as the US Dollar retreats, with AUD/USD aiming to reclaim the 0.6500 mark.
• Australia's Monthly CPI rose 2.8% YoY in July, higher than the expected 2.3%.
• Markets are eyeing the upcoming Core PCE and Initial Jobless Claims data for fresh cues on Fed monetary policy.

The Australian Dollar (AUD) rebounds sharply on Wednesday after edging lower earlier in the day, as the US Dollar (USD) gave up some of its intraday strength. Despite hotter-than-expected monthly Consumer Price Index (CPI) data, the AUD/USD pair fell to 0.6462 during Asian trading hours, amid broad-based Greenback strength. However, the pair has since bounced back and is now trading near 0.6509 at the time of writing, attempting to reclaim the 0.6500 psychological mark while hovering near its highest level since August 18.

Data released earlier in the day by the Australian Bureau of Statistics showed that the Monthly Consumer Price Index (CPI) rose 2.8% YoY in July, up sharply from 1.9% in June and well above market forecasts of 2.3%. The jump was primarily driven by a 13.1% surge in electricity prices, reflecting the expiration of utility rebates, as well as higher costs for food, alcohol, and housing.

The upside surprise in inflation has dampened immediate expectations for a Reserve Bank of Australia (RBA) interest rate cut at the September meeting, though markets still see a potential easing move in November, contingent on further data softening. Policymakers have repeatedly emphasized the importance of incoming data, particularly around inflation persistence and wage dynamics, before making their next move.

Still, economists caution that much of July's inflation rise appears transitory. Energy rebates are set to resume in August, which may cool electricity costs and headline inflation. As such, today's CPI print, while stronger than expected, may not be sufficient to derail the RBA's gradual pivot toward easing later this year.

Meanwhile, the US Dollar is trading slightly weaker across the board after edging higher earlier in the day, as fragile sentiment surrounding President Trump's push to remove Federal Reserve Governor Lisa Cook weighs on investor confidence. The US Dollar Index (DXY), which tracks the value of the Greenback against a basket of six major currencies, is hovering near 98.20, easing from an intraday high of 98.73.

Adding to the pressure on the Greenback, the dovish tilt from Fed Chair Jerome Powell at last week's Jackson Hole Symposium has further strengthened the case for monetary easing in the coming months. Powell's cautious tone, highlighting downside risks to employment and lingering inflation concerns, has bolstered market expectations for a rate cut as soon as September. The US Dollar remains on the defensive as traders look ahead to this week's key data releases, including Core Personal Consumption Expenditures (PCE) inflation and Initial Jobless Claims, which are expected to offer fresh clues on the Fed's policy trajectory.