The Australian Dollar (AUD) recovers ground against the US Dollar (USD) on Tuesday, with the Reserve Bank of Australia's (RBA) interest rate cut decision overshadowed by broad Greenback softness following mixed US Consumer Price Index (CPI) figures. At the time of writing, the AUD/USD pair is trading around 0.6530 during the American trading hours.

Meanwhile, the US Dollar is also weighed down by political noise after President Donald Trump said on Truth Social he is "considering allowing a major lawsuit against Fed Chair Jerome Powell" and even suggested he "would sue Powell over construction of Fed buildings." The US Dollar Index (DXY) extended losses following the remarks, trading near a two-week low around 98.00.

Data from the US Bureau of Labor Statistics showed headline CPI rose 0.2% MoM in July, matching expectations and slowing from June's 0.3% gain. On an annual basis, consumer prices held steady at 2.7%, slightly below forecasts of 2.8%. In contrast, Core CPI which excludes volatile food and energy prices increased 0.3% MoM, above the expected 0.2% forecast and June's 0.2% rise. The annual core reading climbed to 3.1% from 2.9%, also exceeding market estimates.

Earlier on Tuesday, the Reserve Bank of Australia (RBA) cut the official cash rate by 25 basis points to 3.60% in its August meeting, the third reduction this year and the lowest level in two years. The decision was unanimous, with policymakers citing further moderation in inflation toward the 2-3% target range and a modest softening in labour market conditions, as unemployment ticked up to 4.3%.

RBA Governor Michele Bullock reiterated that future policy decisions will remain data-dependent, while highlighting concerns over slowing productivity growth, which could cap long-term economic potential. The bank also downgraded its growth forecasts, projecting GDP to expand by just 1.7% by year-end.

In the US, the CPI report reinforced expectations that the Federal Reserve will deliver a rate cut in September despite the uptick in core inflation. According to the CME FedWatch Tool, markets are pricing a 94% probability of a 25 basis point cut next month, up from 84% earlier in the day.

Looking ahead, attention now turns to Thursday's data releases, with Australia set to publish its July employment report, including Full-Time and Part-Time Employment, the Participation Rate, and the Unemployment Rate, for fresh cues on the labour market's health.

Later in the day, the US will release its weekly jobless claims alongside the Producer Price Index (PPI) readings, offering further insight into labor market conditions and underlying price pressures, which could influence expectations for the Federal Reserve's September policy decision.

Source: Fxstreet