AUD/USD exhibits strength above 0.6600 as market sentiment improves

The AUD/USD pair is up 0.13%, near 0.6615, at the time of writing in the European session on Wednesday. The Aussie asset moves higher as the US Dollar remains sideways, even though the February United States Consumer Price Index (CPI) data has prompted uncertainty over Federal Reserve (Fed) rate cuts in the June policy meeting.

S&P500 futures posted some gains in the London session, indicating a higher risk appetite among market participants. 10-year US Treasury yields fell to 4.14%. The US Dollar Index (DXY) is stuck in a tight range, slightly below 103.00, as investors reassess the likelihood of three rate cuts this year, as projected by the Fed in December.

Fed policymakers are expected to hold interest rates until they are convinced that inflation will sustainably fall to the desired rate of 2%. The consumer price inflation data released for the first two months of 2024 have not indicated signs of easing, which could force Fed policymakers to reassess their expectations for three rate cuts.

On the contrary, Fed Chair Jerome Powell said in his Congressional testimony last week that the central bank is not far from gaining conviction that inflation will return to 2%.

Meanwhile, the Australian Dollar is likely to dance to the tunes of market expectations for the Reserve Bank of Australia’s (RBA) interest rate decision, scheduled for next week. The RBA is expected to keep the Official Cash Rate (OCR) steady at 4.35%. Former RBA Governor Philip Lowe said in an interview with 9 Australia on Tuesday that stubborn inflation could force policymakers to keep interest rates higher for a longer period than what was anticipated earlier.