AUD/USD rides high ahead of FOMC’s decision, as traders eye hawkish hold

• AUD/USD surges to 0.6507, up 0.83%, as US bond yields retreat and the US Dollar Index drops 0.46% to 104.72.”
• Fed’s upcoming decision and economic projections eyed; any downward revisions for 2024 could further boost the Aussie.
• Upbeat Chinese data and the RBA’s openness to further tightening underpin the currency’s strength.

The Australian Dollar (AUD) is climbing sharply against the US Dollar (USD) minutes ahead of the US Federal Reserve’s (Fed) monetary policy decision, as US bond yields edge lower after climbing to multi-year highs on Tuesday. Therefore, the AUD/USD is trading at 0.6507, after hitting a daily low of 0.6448, gains 0.83%.

Aussie Dollar gains 0.83% against the US Dollar as markets brace for the Fed’s decision

The last hour has witnessed an increase in volatility as the Fed’s decision approaches. Wall Street trades mixed, the outlier being the Nasdaq Composite, down 0.08%. The Greenback (USD) remains under pressure, down 0.46%, as depicted by the US Dollar Index (DXY) at 104.72. The fixed income space shows US bond yields dropping while traders safety their seatbelts.

Market participant estimates see the Fed keeping rates unchanged but delivering a hawkish statement. Fed policymakers will update their economic projections, with speculations of growth to be upward revised and revised inflation down, with the only question being: where does the Fed see the Federal Funds Rate in 2023, 2024, and 2025?

The latest Fed’s Summary of Economic Projections (SEP) foresaw the FFR at 5.6% in 2023 and 4.6% in 2024. Any downward revisions for 2024 could weigh on the Greenback, and the AUD/USD could extend its gains for the rest of the day.

Money market futures show the Fed’s odds for a November rate hike are 27% for a quarter of a percent increase, ahead of the Federal Open Market Committee (FOMC) decision. For December, the odds stand at 34.1%.

On Australia’s front, the Aussie (AUD) remains underpinned by upbeat news from China. As recent Chinese data has improved, the People’s Bank of China (PBoC) kept the one and 5-year loan prime rates (LPR) unchanged.

Furthermore, the latest Reserve Bank of Australia (RBA) monetary policy minutes noted that members discussed weak domestic demand and contagion from China’s economic slowdown, which were seen as factors for weak economic growth. However, the RBA kept the door open for further tightening if inflation probes to be stickier than expected.

The AUD/USD is set to trade volatile amidst the Fed’s decision, delivered at 18:00 GMT. The decision would be followed by the Federal Reserve Chair Jerome Powell’s press conference, at around 18:30 GMT.

AUD/USD Price Analysis: Technical outlook

The daily chart portrays the pair as neutral-biased but threatening to turn neutral-upwards as the pair approaches the August 30 high of 0.6522. a breach of that level, and the AUD/USD could challenge the 50-day Moving Average (DMA) at 0.6540 before testing the next resistance area found at 0.6616, the August 10 high. Failure to extend its gains could pave the way for a pullback toward the September 15 swing high at 0.6474.