AUD/USD rebounded from intraday losses during Tuesday’s European session, climbing from its low of around 0.6650. The Australian Dollar (AUD) strengthens as the Reserve Bank of Australia (RBA) minutes from the May meeting reveal further discussions about potentially raising interest rates. This sentiment stems from the perceived risks of inflation remaining elevated for an extended period. A slight dip in the US dollar (USD) also contributes to the Aussie recovery.

On the USD front, despite hawkish signals regarding interest rates from Federal Reserve (Fed) officials, traders’ expectations for rate cuts in September persist. The CME FedWatch tool indicates a 61% probability of interest rate reductions, down from 65%.

Cleveland Fed Bank President Loretta Mester cautioned against excessive rate cuts, noting that inflation risks have tilted to the upside. She advocated maintaining current interest rate levels while gathering more data to inform policy decisions.

Investor attention now turns to releasing the Federal Open Market Committee (FOMC) minutes from the May meeting, scheduled for Wednesday. The minutes are anticipated to reflect a hawkish stance on the interest rate outlook, given the slowdown in the disinflation process and higher-than-expected inflation in the previous months.

Trade Idea:

Monitor AUD/USD movements in response to the release of the FOMC minutes, as they may provide insights into the Fed’s future policy direction, potentially impacting the pair’s trajectory.