- AUD/USD trades sideways amid investors exercise caution before Fed policy decision.
- US Dollar (USD) could strengthen on the odds of another rate hike by the Fed in November or December meetings.
- Meeting minutes showed that the RBA decided to keep the current interest rates on recent economic data.
AUD/USD continues to move sideways amid investors turn cautious ahead of the US Federal Reserve (Fed) policy decision. The spot price trades around 0.6430 during the Asian session on Tuesday.
The Reserve Bank of Australia (RBA) published its September monetary policy meeting minutes. The RBA did contemplate a 25 basis points rate hike, but ultimately decided to maintain the current interest rate. This decision was driven by the fact that recent economic data did not significantly change the economic outlook.
The minutes from the meeting also indicated that the central bank is prepared to tighten monetary policy further if inflation turns out to be more persistent than anticipated. However, since there were no fresh hawkish signals in the minutes, it could act as an undermining factor for the Australian Dollar (AUD) against the US Dollar (USD).
On the other side, the US Federal Reserve (Fed) is expected to keep its current interest rates in September’s policy meeting, which is exerting pressure on the Greenback. However, investor caution ahead of the policy decision could lend support to the buck. This caution may stem from the possibility of a 25 basis points interest rate hike by the end of 2023.
Traders seem considering the possibility that the Fed may maintain higher interest rates for an extended period due to the resilient incoming macro data and sticky inflation. Market participants will carefully scrutinize the central bank's statements for any hints or insights into the potential future path of interest rates.
US Dollar Index (DXY) snaps the two-day losing streak, trading higher around 105.20 below a six-month high touched last week. However, US Treasury yields rebound from the previous day’s losses. The yield on the US 10-year bond stands at 4.31% at the time of writing. Improved yields may provide support in underpinning the Greenback.
Investors will likely watch the upcoming macro data from the US, including Building Permits and Housing Starts for August later in the North American session. These datasets may provide a potential impetus for US economic activities, which could be helpful for traders to place fresh bets on the AUD/USD pair.
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