AUD/USD holds key support of 0.6500 ahead of Fed policy meeting

• AUD/USD faces pressure amid cautious market sentiment ahead of Fed policy.
• Investors await the Fed’s dot plot and economic projections for fresh guidance.
• RBA Bullock delivers a neutral interest rate outlook.

The AUD/USD pair faces selling pressure but continues to hold the psychological support of 0.6500 in Wednesday’s late European session ahead of the Federal Reserve’s (Fed) monetary policy decision, which will be announced at 18:00 GMT. The Aussie asset remains on the backfoot as the Australian Dollar weakens as the Reserve Bank of Australia (RBA) Governor Michele Bullock delivers neutral guidance on the Official Cash rate (OCR) after keeping it unchanged at 4.35%.

S&P 500 futures are slightly down in the late London session, portraying caution among market participants ahead of the Fed’s monetary policy announcement. The US Dollar Index (DXY) jumps to 104.10 after continuing its winning spell for the fifth trading session. 10-year US Treasury yields have dropped slightly to 4.28%, remains broadly strong ahead of Fed’s meeting.

The CME Fedwatch tool shows interest rates will remain unchanged in the range of 5.25%-5.50% for the fifth time in a row. The Fed is expected to avoid signalling any timeframe for rate cuts as inflation remains stubbornly higher than the 2% target. Consumer price inflation in February was hotter than expected due to higher food and gasoline prices. The rate cuts are appropriate only if the Fed finds inflation declining to 2% as certain.

Apart from that, Fed’s dot plot and United States economic projections will be keenly watched. The Fed’s dot plot is updated every quarter, shows interest rates projections for different timeframes. December’s dot plot indicated that policymakers see three rate cuts in 2024. The appeal for safe-haven assets would strengthen If the Fed projects fewer rate cuts this time.