AUD/USD struggles for a firm direction, flat-lines above mid-0.6600s ahead of FOMC

• AUD/USD oscillates in a narrow trading band as traders move to the sidelines ahead of the Fed.
• The RBA’s surprise rate hike continues to underpin the Aussie and acts as a tailwind for the pair.
• The ongoing USD pullback from a three-week high further contributes to limiting the downside.

The AUD/USD pair struggles to gain any meaningful traction on Wednesday and seesaws between tepid gains/minor losses, just above mid-0.6600s through the early part of the European session.

The Australian Dollar (AUD) continues to draw some support from the Reserve Bank of Australia's (RBA) surprise 25 bps rate hike on Tuesday and a more hawkish outlook. This, along with the ongoing US Dollar (USD) retracement slide from a three-week high touched the previous day, acts as a tailwind for the AUD/USD pair. The overnight release of the US Job Openings and Labor Turnover Survey (JOLTS) indicated that the ultra-tight US job market is loosening. Apart from this, concerns over the US debt ceiling and renewed fears of a full-blown banking crisis drag the Greenback lower for the second straight day.

Apart from this, a modest recovery in the US equity futures undermines the safe-haven buck and benefits the risk-sensitive Aussie. The upside for the AUD/USD pair, however, remains capped as traders seem reluctant to place aggressive bets ahead of the highly-anticipated FOMC monetary policy decision, due to be announced later during the US session. The Federal Reserve (Fed) is widely expected to hike rates by 25 bps, though investors seem divided over the possibility that the Fed will announce a pause in its rate-hiking cycle as inflation is still trending well above the central bank's target range.

Hence, the focus will be on the accompanying monetary policy statement and Fed Chair Jerome Powell's comments at the post-meeting press conference, which will be scrutinized for clues about the future rate-hike path. This, in turn, will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the AUD/USD pair. Heading into the key central bank event risk, traders on Wednesday might take cues from the US economic docket - featuring the release of the ADP report on private-sector employment and the ISM Services PMI - to grab short-term opportunities.

Technical levels to watch