AUD/USD remains on the defensive above the mid-0.6500s, all eyes on RBA, Fed rate decision

The AUD/USD pair trades on a negative note above the mid-0.6500s during the early Asian session on Monday. Markets are likely to trade quietly ahead of the Reserve Bank of Australia (RBA) and the US Federal Open Market Committee (FOMC) interest rate decisions on Tuesday and Wednesday, respectively. The major pair currently trades around 0.6560, down 0.01% on the day. 

The RBA is expected to hold its key interest rate at 4.35% for a third consecutive meeting at its March meeting scheduled for Tuesday. Furthermore, investors anticipate the Australian central bank to retain a mild tightening bias and see at least two rate cuts in the final quarter of 2024. The timing of RBA easing may depend on when the US Federal Reserve (Fed) begins cutting rates, which is estimated in the June meeting. However, any surprise dovish remarks from the RBA after the policy meeting might drag the Australian Dollar (AUD) lower against the US Dollar (USD).

On the other hand, the Fed is likely to maintain its monetary policy at its March meeting amid the uptick in inflation in the US. The Fed Chairman Jerome Powell warned in recent weeks about cutting interest rates too early and emphasized a “data-dependent” approach to ensure inflation returns to the 2% target firmly. 

On Friday, the preliminary US University of Michigan Consumer Sentiment Index eased to 76.5 in March from 76.9 in February, weaker than the market expectation of 76.9. Additionally, the one-year and five-year inflation expectations were unchanged at 3.0% and 2.9%, respectively.

Looking ahead, the RBA will announce its interest rate decision on Tuesday, while the Fed will announce it on Wednesday. Traders will take cues from these events and find trading opportunities around the AUD/USD pair.