AUD/USD traders get set for the Fed

• AUD/USD traders await the Federal Reserve announcements.
• The RBA and Fed are a key focus while Ukrain and China risks continue to underpin the greenback. 

At 0.7145, AUD/USD is 0.7% higher on the day after rallying from a low of 0.7088 to a high of 0.7154.  The Australian dollar has continued to outperform this week following the Reserve Bank of Australia on Tuesday when it lifted the cash rate by a surprisingly large 25 basis points to 0.35%.

This was a surprise to the markets that were expected less of a raise and it was the first hike in over a decade. Additionally, the RBA gave the nod to more to come with the intention to pull down the curtain on its massive pandemic stimulus. However, for the day ahead, it is all about the Federal Reserve. 

At the top of the hour, the markets will hear from the Fed following the Federal Open Market Committee's two-day meeting. Traders will be waiting for the decision and accompanying statement. The central bank is expected to raise the Fed Funds rate by 50bp at their May meeting to 0.875% and provide a confirmation of the quantitative tightening process. Meanwhile, Fed funds futures traders are pricing for the Fed’s benchmark rate to increase to 2.96% by year-end, from 0.33% now. 

Chair Powell’s press conference will follow but there will not be any no new forecasts. Comments by Fed Chairman Powell will be key and will be scrutinized for additional signs on how the U.S. central bank will balance the need to stem inflation that has been rising at the fastest pace in 40 years. ''If he shows any hints of dovishness, markets will take yields and the dollar lower," Win Thin, global head of currency strategy at Brown Brothers Harriman, said in a report. "That said, we see no reason for Powell to hedge his bets right now and so we expect full speed ahead from the Fed," he added.

Leading into the meeting, the US dollar has fallen against a basket of currencies as traders move to the sidelines given how much of the hawkish expectations are already priced into the greenback. The dollar index (DXY) was last at 103.38, down 0.07% on the day. It reached 103.93 on Thursday, the highest since Dec. 2002 but printed a low of 103.186 today, sliding from 103.597.

Overall, the US dollar remains the go-to currency at a time when safe-haven flows are seeking shelter from the risks associated with the Ukraine crisis as well as the COVID-19 restrictions in China that have raised concerns about global growth and new supply chain disruptions.