• The Australian Dollar may limit its downside as high inflation prompts the RBA to delay rate cuts.
• Australia’s May inflation has sparked warnings that the RBA might raise the cash rate to 4.6% in September.
• The US Dollar may struggle as slowing US employment growth could lead the Fed to reduce rates sooner.

The Australian Dollar (AUD) edges lower due to risk aversion on Monday. The renewed US Dollar (USD) demand puts pressure on the AUD/USD pair. The AUD could limit its downside due to persistently high inflation and stronger Retail Sales and Services PMI. These factors might prompt the Reserve Bank of Australia (RBA) to delay potential rate cuts.

The RBA’s June Meeting Minutes indicated that policymakers emphasized the need to stay alert to upside inflation risks. The policymakers noted that a significant rise in prices might necessitate substantially higher interest rates. Although rates were steady in June, May’s CPI, which surprisingly increased to 4.0% from the previous 3.6%, prompted warnings that the RBA might raise the cash rate to 4.6% in September.

The US Dollar (USD) may face challenges as US employment growth slowed in May, according to data released on Friday. While Nonfarm Payrolls (NFP) exceeded market expectations in June, the growth was slower compared to May's increase. Additionally, the Unemployment Rate edged higher in June. This could lead traders to speculate that the Federal Reserve (Fed) might reduce interest rates sooner rather than later.

The CME's FedWatch Tool shows that rate markets are pricing in an almost 70.7% probability of a rate cut in September, up from 64.1% a week earlier.