AUD/USD stable around 0.6850, just below the pre-FOMC multi-month high

• AUD/USD reverses modest intraday losses, though lacks any continuation buying.
• Risk Appetite Supports Aussie; while a modest USD rally caps gains.
• Traders now await the FOMC decision for further directional momentum.

The AUD/USD attracts some buying at lower levels on Wednesday and stops the previous day’s modest pullback from near the 0.6900 level, or its highest level since September 13. The pair rises to the top of its daily range at the start of the European session and is currently sitting around 0.6850.

A generally positive tone around stock markets turns out to be a key factor benefiting the risk-sensitive Australian dollar. That being said, modest US dollar strength could act as a headwind for the AUD/USD pair and limit any significant upside. The dollar rally, meanwhile, could only be attributed to some repositioning trade ahead of the key US central bank event and risks fading quickly amid expectations of a less hawkish Fed.

Consumer inflation figures US CPI softer than expected, released on Tuesday, reaffirmed expectations that the US central bank will slow the pace of monetary policy tightening. In fact, the Fed is expected to raise rates by 50 basis points at the end of their two-day meeting, this Wednesday. Therefore, investors will be closely scrutinizing the monetary policy statement and the so-called “dot chart” for further clues about the Fed’s rate-hike path.

Meanwhile, jitters over policymakers’ view of a significant cooling in US inflation could support the dollar and limit AUD/USD gains. Nevertheless, the fundamental undercurrent appears to be tilting in favor of the bulls and supports prospects for further appreciation. Even from a technical point of view, the previous day’s break above the 0.6800 level and the appearance of some buying at lower levels on Wednesday reinforce the positive outlook.

AUD/USD technical levels