AUD/USD continues to rise above 0.6450 with focus on FOMC decision

• AUD/USD is trading higher around 0.6460 ahead of the Fed’s monetary policy decision.
• The RBA could tighten its monetary policy further if inflation persists.
• Investors are likely to watch Fed Chair Jerome Powell’s post-meeting press conference for more clues about the path of interest rates.

The AUD/USD pair extends its gains for the third day in a row, trading higher around 0.6460 during the European session on Wednesday. The pair is experiencing bullish support possibly due to market caution ahead of the release of the interest rate decision by the US Federal Reserve (Fed).

On Tuesday, the Reserve Bank of Australia (RBA) released minutes from its September monetary policy meeting, providing insight into the central bank’s deliberations. According to the minutes, the RBA considered a possible interest rate hike of 25 basis points during the meeting. However, in the end, the central bank chose to leave the current interest rate unchanged.

The decision to maintain the status quo was primarily influenced by the observation that recent economic data did not cause significant alterations to the economic outlook.

Minutes of the meeting revealed that the central bank is willing to take additional steps to tighten monetary policy if inflation turns out to be more persistent than initially expected. Despite this preparation, the absence of new hawkish signals in the minutes may act as a dampening factor for the Australian Dollar (AUD) compared to the US Dollar (USD).

The People’s Bank of China (PBoC) decided to keep benchmark lending rates unchanged in its monthly setting, in line with market consensus. Specifically, the one-year LPR, which saw a 10 basis point reduction last month, remains at 3.45%, while the five-year LPR remains stable at 4.20%.

Separately, the Vice Chairman of China’s National Development and Reform Commission (NDRC), a key state planner, stated on Wednesday that “the economy is facing many difficulties and challenges.”

The official also suggested that the national macroeconomic control policies implemented by the government to manage and regulate the national economy are effective and that they will strive to achieve the annual economic growth targets.

The DXY Dollar Index, which measures the performance of the US Dollar (USD) against six other major currencies, is trading lower near 105.10 at the time of writing. Traders predict that the Fed will maintain its current interest rates, and are shifting their attention to the new guidance offered by the central bank.

Markets have been pricing in the possibility of another 25 basis point rate hike by the end of the year, given strong US macroeconomic data and persistent inflationary pressures.

The US economic outlook continues to support rising Treasury yields, which in turn are boosting the US Dollar (USD) and creating headwinds for the AUD/USD pair. At the time of writing, the 10-year US Treasury yield stands at 4.35%, below its highest level in 16 years.

The bearish potential appears to be somewhat protected, as investors look for new indications on the Fed’s future rate hike plans. This search for clarity will play a crucial role in shaping the near-term direction of the Dollar.

However, market sentiment seems to suggest that the Fed is inclined to maintain higher policy rates for an extended period. Market attention will primarily focus on the accompanying monetary policy statement and Fed Chair Jerome Powell’s comments during the post-meeting press conference.