The Aussie dipped on Wednesday in Asia after consumer price data came in a tad weaker than expected.

In Australia, CPI data for the second quarter showed a 0.4% rise quarter-on-quarter as expected, while the year-on-year figure came in at 1.0%, a bit below the 1.1% pace seen.

Still, underlying inflation year-on-year – the most important number for the market and the Reserve Bank – was slightly higher than expected at 1.5%.

So the outcome is mixed but still keeps alive the likelihood of a rate cut at the RBA’s August board meeting. Much will depend on how the RBA views inflation pressures going ahead and to that extent still-soft housing related inflation, and soft non-tradable inflation may push them over the line for a cut.

Overnight, the U.S. dollar Index fell mildly on Tuesday but still remained near four-month highs, as currency traders await the release of the Federal Reserve’s latest monetary policy statement before the U.S. central bank breaks for the summer.

More broadly, the index is relatively flat over the last eight months since the Federal Reserve ended a seven-year Zero Interest Rate Policy by approving its first interest rate hike in nearly a decade.

Currency traders worldwide proceeded cautiously for a second straight session, as market players await the Fed’s latest interest rate decision on Wednesday afternoon.
The Federal Open Market Committee (FOMC) is widely expected to leave its benchmark interest rate at a targeted range between 0.25 and 0.50% for their fifth straight meeting. On Tuesday, the CME Group’s (NASDAQ:CME) Fed Watch tool placed the probability of a July rate hike at 2.4%. Even if the FOMC holds rates steady, analysts will closely parse the monetary policy statement for signals on whether the Committee is leaning towards further tightening when it meets again in late-September. The odds of a September rate hike, according to the CME Group, rose to 25.2% on Tuesday, up from 18.8% a day earlier. By December, the odds rise substantially to 41.7%, in line with previous estimates over the last week.

Any rate hikes by the FOMC this year are viewed as bullish for the dollar, as foreign investors pile into the greenback in order to capitalize on higher yields.

As members of the FOMC gathered in Washington D.C. for the start of the two-day meeting, participants received their last chance to review a slew of incoming economic data before Wednesday’s vote. While the Conference Board’s Consumer Confidence Index fell slightly in July to 97.3, consumer confidence still remains highly following a massive five-point surge a month earlier. Analysts expected a decline of two points to 96.0. The present situation index also rose 1.7 points to 118.3, representing its strongest monthly gain since last September.

Also, new home sales last month rose by 592,000, topping consensus forecasts of 562,000 and marking the largest increase in three months. On an annual basis, new home purchases in the Midwest and South are both up by more than 20% over the last 12 months. Economists are less optimistic about growth potential in the service-sector after Markit’s PMI Services Flash fell 0.4 points from a prior reading of 51.3. Any reading below 50.0 provides signals of contraction in the industry.

In the U.K., Bank of England policymaker Martin Weale adopted a shift in policy on Tuesday, telling the Financial Times that he now supports “immediate stimulus,” following the release of a wave of negative business reports last week. Weale did not disclose if he plans to back an interest rate cut when the BOE meets next week.