AUD/USD holds tight in the process of a significant correction

• AUD/USD is on the verge of a 61.8% Fibo and bullish correction but markets await the Fed.
• Quiet trade could see the price rift into the next key US data and events.

AUD/USD remains steady as the markets await the next central bank outcome following the prior session's Reserve Bank of Australia (RBA) outcome. The AUD was under pressure following the RBA’s policy meeting with long-end rates and inflation expectations remaining a focus for markets as the Federal Reserve concludes its two-day meeting. 

RBA tones it down

Firstly, the RBA ditched the yield target and amended its forward guidance, but the outcome was dovish all in all as the Board’s statement emphasised it is prepared to be patient. RBA’s Lowe explained that underlying inflation would have to print at 2.5% before the Board would consider lifting the cash rate.

As such he saw current market pricing as “not consistent with our reaction function. This followed the RBA discontinuing its yield target while reflecting less confidence about the duration of the 0.1% cash rate. The RBA also flagged the second half of 2023 as the time inflation will be at the mid-point of the target band.

All eyes on the Fed

As for the Fed, the markets are positioned for a tapering announcement following guidance from the central bank which has managed expectations perfectly in terms of preparing the markets for what is likely to be speed tapering. 

''Most officials seem to agree that it’s better to get tapering over as quickly as possible in order to leave the Fed maximum flexibility to hike rates when needed,'' analysts at Brown Brothers Harriman explained. ''We believe that the most likely path for tapering has already been flagged by the Fed, which would reduce asset purchases by $15 bln per month ($10 bln UST and $5 bln MBS).''

AUD/USD technical analysis

As illustrated, from the analysis overnight, the price is indeed recovering from the marked support area. It has now made a 38.2% Fibonacci retracement with potentially more on the way: