AUD/USD extends its upside around 0.6760 on the weaker USD, lower US yields

• AUD/USD gains traction near 0.6762 amid the USD weakness.
• The dovish stance from the Fed weighs on the Greenback broadly.
• The Reserve Bank of Australia (RBA) may hike the rate further, but the policy setting will depend on the incoming data.
• Traders await the US Existing Home Sales, due later on Wednesday.

The AUD/USD pair extends its rally during the early Asian session on Wednesday. The softer US Dollar (USD) and a rise in commodity price lends some support to the Australian Dollar (AUD), which underpins AUD/USD. The pair currently trades around 0.6762, up 0.01% on the day.

The US housing data on Tuesday showed mixed readings. Housing Starts climbed to 1.56 million, beating the market expectation of 1.36 million. Meanwhile, Building Permits dropped to 1.46 million, worse than the market consensus of 1.47 million.

Following the Federal Open Market Committee (FOMC) meeting last week, the markets believe the US central bank is done with its tightening cycle and opened the door to rate cuts next year. This, in turn, exerts some selling pressure on the Greenback and acts as a tailwind for the AUD/USD pair. According to CME's FedWatch tool, financial markets are pricing in a 67.5% odds that the Fed will cut a 25 basis point (bps) as soon as March.

On the other hand, the Reserve Bank of Australia (RBA) stated in its December minutes that the central bank may raise interest rates again amid the encouraging signs of falling inflationary pressures across the economy. Nonetheless, the policy setting will depend on the incoming data and the evolving assessment of risks.

Looking ahead, traders will keep an eye on the release of US Existing Home Sales on Wednesday. Later this week, the US Gross Domestic Product Annualized for the third quarter (Q3) will be released, which is estimated to remain steady at 5.2%. On Friday, attention will shift to the Core Personal Consumption Expenditures Price Index (PCE). These figures could give a clear direction to the AUD/USD pair.