• AUD/USD drops from 0.6800 with Aussie inflation under the spotlight.
• The Fed seems prepared to begin reducing interest rates from September.
• The near-term outlook of the US Dollar remains weak.

The AUD/USD pair falls from the monthly high of 0.6800 in Monday’s American session. The Aussie asset drops as the US Dollar (USD) edges higher. While the near-term outlook of the US Dollar remains vulnerable as the Federal Reserve (Fed) is widely anticipated to start reducing interest rates from the September meeting.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rises slightly to near 100.90 from the annual low of 100.53.

While the Fed seems certain to cut interest rates in September, traders remain split over the likely size. According to the CME FedWatch tool, 30-day Federal Funds futures pricing data shows that the likelihood of a 50-basis point (bps) interest-rate reduction is 36.5%, while rest of the bets are in favor of a 25-bps rate cut.

Meanwhile, the Australian Dollar (AUD) will be influenced by the monthly Consumer Price Index (CPI) data for July, which will be published on Wednesday. Economists estimated that price pressures declined sharply to 3.4% from 3.8% in June. An expected decline in the inflation data would bring expectations of interest rate cuts to the table.