Australian Dollar holds its ground ahead of highly anticipated Fed decision

AUD/USD trades around 0.7130 on Wednesday at the time of writing, virtually unchanged on the day, as investors remain cautious ahead of the Federal Reserve (Fed) monetary policy decision. Expectations of a US interest-rate hike support the US Dollar (USD), while prospects of further monetary tightening in Australia provide some support to the Australian Dollar (AUD).

Markets widely expect the Fed to raise interest rates by 25 basis points (bps) at its September meeting on Wednesday. According to the CME FedWatch tool, the chance of such a move stands at around 92%.

With a rate hike already largely priced in, investors' attention is likely to focus primarily on signals regarding the future path of US monetary policy. Fed Chair Kevin Warsh will hold a press conference following the decision.

A message suggesting that the US central bank is in no hurry to tighten its monetary policy further could weigh on the US Dollar and support AUD/USD. Conversely, comments leaving the door open to additional rate hikes could strengthen the Greenback and put pressure on the pair.

In Australia, monetary policy expectations also provide support to the Australian Dollar. The Reserve Bank of Australia (RBA) has kept its Official Cash Rate (OCR) unchanged at 4.35% at its last three meetings, following three consecutive increases earlier this year.

Persistent inflationary pressures are nevertheless fueling expectations of further monetary tightening. According to the RBA Rate Tracker, markets assign around a 78% chance that the Australian central bank will raise the OCR to 4.6% at its next meeting.

The prospect of another RBA rate hike could therefore limit downside pressure on the Australian Dollar, although the near-term direction of AUD/USD is likely to depend primarily on the message delivered by the Fed on Wednesday.

AUD/USD technical analysis

In the one-hour chart, AUD/USD trades at 0.7134. The pair holds below the 100-period and 200-period moving averages at 0.7147 and 0.7181, respectively, keeping the near-term bias capped despite a mildly positive tone in the Relative Strength Index (14) around 56. Price is hovering just under immediate horizontal resistance at 0.7137, suggesting recovery attempts face supply while intraday momentum remains constructive but not strong enough yet to challenge the broader bearish structure.

On the topside, initial resistance is seen at 0.7137, followed by the 100-period moving average near 0.7147 and then the 0.7150 barrier, with the 200-period moving average at 0.7181 and the horizontal hurdle at 0.7188 forming a wider cap higher up. On the downside, immediate support emerges at 0.7120, ahead of the lower horizontal floor at 0.7108, where a break would open the door to a deeper pullback within the prevailing bearish context.

(The technical analysis of this story was written with the help of an AI tool. Know more.)