AUD/USD rally stalls below 0.6650 with all eyes on the Fed’s decision

The Aussie remains capped below 0.6650 against the USD, with the bullish trend still intact.
RBA-Fed monetary policy divergence is weighing on the Greenback.
The US central bank is expected to cut rates for the third consecutive time on Wednesday.

Guillermo Alcala FXStreet

The Australian Dollar is trading practically flat below a nearly two-month high, at 0.6654, hit on Tuesday. The pair consolidates gains after rallying more than 3% from November’s lows as investors bid their time ahead of the conclusion of the US Federal Reserve’s (Fed) monetary policy meeting.

The market has practically discounted a 25-basis-point Fed rate cut later on Wednesday. This will be the third consecutive one and is expected to be followed by a hawkishly tilted monetary policy stance, despite the wide divergence among policymakers.

Fed Powell and the "dot-plot" will grab the attention

Investors will be focusing on Chairman Powell’s ensuing press conference and on the bank’s interest rate projections, the so-called “dot-plot”, for further insight about the bank’s near-term monetary policy plans for 2026. Investors will be eager to contrast market expectations of two to three further rate cuts next year with the bank's forward guidance.

On Tuesday, US President Donald Trump added pressure on the central bank in an interview with Politico, calling Powell “not a smart person” for refusing to cut interest rates fast enough and assuring that the support for "immediately slashing interest rates" will be a condition for the election of the next Fed chair.

In Australia, the Reserve Bank of Australia (RBA) left rates on hold on Tuesday, as widely expected, and governor Michelle Bullock warned about rising inflationary pressures, which suggests that the next move will be a rate hike, probably in the second half of 2026.

The Aussie Dollar rallied after the RBA’s decision, before trimming some losses amid the weak inflation levels seen in China, Australia’s main trading partner. The yearly inflation accelerated in November, as measured by the Consumer Prices Index, but monthly inflation contracted, and producer prices’ deflationary pressures deepened, underscoring the weak domestic consumption.

Economic Indicator

Fed Monetary Policy Statement

Following the Federal Reserve's (Fed) rate decision, the Federal Open Market Committee (FOMC) releases its statement regarding monetary policy. The statement may influence the volatility of the US Dollar (USD) and determine a short-term positive or negative trend. A hawkish view is considered bullish for USD, whereas a dovish view is considered negative or bearish.

Economic Indicator

Fed Interest Rate Decision

The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).

GBP/USD trims gains, back to around 1.3500

GBP/USD now surrenders part of the earlier move to multi-week peaks around 1.3530 and comes close to the 1.3500 support on Monday. Cable’s uptick comes in tandem with decent gains in the Greenback, always amid persistent uncertainty lingering over the reopening of the Strait of Hormuz and US-Iran talks.

EUR/USD deflates to 1.1540

EUR/USD begins the week on the back foot, retesting the 1.1540 zone as the NA session draws to a close. The better tone in the US Dollar weighs on the risk complex, sparking the daily correction in spot, always on the back of unabated effervescence in the Middle East.

Gold surges past $4,400, hitting fresh two-month highs

Gold climbs further beyond $4,400, touching its highest level since June 5 in the Asian session on Tuesday. Easing Fed rate hike expectations continue to drive flows towards the non-yielding bullion. Meanwhile, inflation risks stemming from volatile oil prices back the case for at least one rate hike in 2026, which supports the US Dollar and might cap the precious metal ahead of the crucial US CPI report on Wednesday.

Bitcoin softens on institutional selling – CRV, ICP outperform

The broader cryptocurrency market shows mixed sentiment as Bitcoin (BTC) drops to $64,000 under institutional selling pressure. The Fear and Greed Index at 37, down from 40 the previous day, signals renewed bearish pressure. Meanwhile, Curve DAO (CRV) and Internet Computer (ICP) continue to extend their gains so far this week, emerging as top performers over the last 24 hours.

Breakouts, fakeouts, and the levels that decide what comes next

Friday gave metal bulls something to celebrate, with gold confirming a major breakout and silver finally pushing above its consolidation. Still, Monday’s action is a reminder that breaking a level is only half the job - the market now needs to prove it can hold those gains.

9-3: Is the Federal Reserve’s vote tally Warsh's new forward guidance?

The rate did not move. Neither did the statement, and that’s the more interesting fact. Set the July 29 Federal Open Market Committee (FOMC) statement beside the one issued on June 17, and the two documents are identical apart from a single verb and a paragraph at the bottom naming three dissenters.