AUD/USD eased to around 0.6990 on Monday after briefly climbing to an intraday high of 0.7011 during the Asian session. Despite the modest retreat, the pair remained above Friday’s closing level as investors positioned themselves ahead of Australia’s key inflation data and the US Federal Reserve’s upcoming monetary policy announcement.

Risk appetite improved after the United States and Iran agreed to pause hostilities, easing geopolitical concerns and triggering a sharp decline in global Oil prices. West Texas Intermediate (WTI) crude traded near $83.70 per barrel after falling more than 7%, reducing fears that higher energy costs would intensify inflationary pressures worldwide. The drop in Oil prices also tempered expectations of an immediate Federal Reserve rate hike, providing modest support to growth-sensitive currencies such as the Australian Dollar.

Market attention now turns to Reserve Bank of Australia (RBA) Governor Michele Bullock’s speech on Tuesday, where investors will look for fresh clues on the central bank’s assessment of inflation and the future direction of interest rates. In the United States, traders will also monitor the ADP Employment Change report. The previous four-week average fell to 16.5K, and another weak reading could reinforce expectations of slowing labour market momentum, while stronger-than-expected figures may boost the US Dollar.

The primary focus for Australian markets will be Wednesday’s release of the June Consumer Price Index (CPI). Headline inflation previously declined by 0.7% month-on-month, while the annual inflation rate stood at 4.0%. Meanwhile, the Trimmed Mean CPI—a closely watched measure of underlying inflation—rose 0.4% monthly and 3.6% annually, indicating that price pressures remained persistent beneath the softer headline reading. A stronger inflation report could strengthen expectations that the RBA will maintain restrictive monetary policy, supporting the Australian Dollar. Conversely, softer figures may increase pressure on AUD/USD.

Later on Wednesday, the Federal Reserve will announce its interest rate decision following its July policy meeting. Although policymakers are widely expected to leave rates unchanged at 3.50%–3.75%, investors will closely examine Chair Kevin Warsh’s remarks for any indication of future tightening. While the recent decline in Oil prices may reduce the urgency for an immediate rate increase, persistent inflation concerns could still encourage a hawkish tone.

Later in the week, attention will shift to the US Personal Consumption Expenditures (PCE) inflation report, alongside monetary policy decisions from the Bank of England on Thursday and the Bank of Japan on Friday, making it a pivotal week for global currency markets.

Trade Idea:
Consider buying AUD/USD if Australia’s CPI surprises to the upside and the Fed maintains a balanced outlook. A sustained move above 0.7010 could open the path toward 0.7070, while weaker inflation may drag the pair back toward 0.6950.