The Australian Dollar (AUD) loses ground on Wednesday for the second consecutive day. The AUD/USD pair struggles as the US Dollar (USD) extends its gains despite the United States (US) Nonfarm Payrolls Benchmark Revision, which has boosted odds that the Federal Reserve (Fed) will begin cutting interest rates as soon as next week.

The AUD/USD pair holds losses following the release of China's Consumer Price Index (CPI), which declined 0.4% year-over-year in August after arriving at 0% in July. The market consensus was for a 0.2% decline in the reported period. The monthly CPI inflation came in at 0% versus the previous 0.4% and the expected 0.1% increase.

The AUD may limit its downside as a solid July Trade Surplus, along with Q2 GDP figures and hotter July inflation, dampen expectations of additional Reserve Bank of Australia (RBA) rate cuts. Swaps are now assigning nearly an 84% probability that the RBA will keep policy unchanged in September, while the likelihood of a 25-basis-point rate cut in November has eased to 80% from 100%.

However, Matthew Hassan, Head of Australian Macro-Forecasting, noted that consumer recovery since mid-2024 has been sluggish, following a decline in Westpac Consumer Confidence to 95.4 in September from 98.5 in August. Hassan indicated that further policy easing may be required, projecting a 25-basis-point RBA rate cut in November, followed by two additional reductions in 2026.

Focus will shift toward US inflation reports that could provide more cues on Fed policy outlook. The August US Producer Price Index (PPI) is scheduled for release on Wednesday, followed by the Consumer Price Index (CPI) on Thursday.

Source: FXstreet