AUD/USD drops 0.4% as soft Australian CPI boosts RBA cut expectations

AUD/USD declined 0.4% to 0.6540 after Australia's Q2 CPI data came in softer than expected, significantly increasing the odds of a Reserve Bank of Australia rate cut. Headline inflation slowed to 3.5% year-over-year from 3.6% previously, missing the 3.8% forecast, while trimmed mean CPI decelerated to 3.9% from 4.0%. The disappointing inflation figures have shifted market pricing, with traders now assigning a 55% probability to a November RBA rate cut, up from 30% before the data release. The Australian dollar's weakness was compounded by broad US dollar strength ahead of the Federal Reserve decision. Technical analysis shows AUD/USD breaking below the 0.6550 support level, opening the path toward 0.6500 psychological support. The diverging monetary policy outlook between the RBA and Fed could pressure the pair further, especially if US data continues to show economic resilience.