AUD/USD continues to gain above 0.6450, focus on FOMC decision

• AUD/USD trades higher around 0.6460 ahead of the policy decision by the Fed.
• RBA could further tighten monetary policy if inflation persists.
• Investors will likely observe Fed Chair Jerome Powell's post-meeting press conference, seeking further cues on interest rates trajectory.

AUD/USD extends gains for the third consecutive day, trading higher around 0.6460 during the European session on Wednesday. The pair is experiencing upward support possibly due to the market caution ahead of the release of the interest rate decision by the US Federal Reserve (Fed).

The Reserve Bank of Australia (RBA) released the minutes of its September monetary policy meeting on Tuesday, providing insights into the central bank's deliberations. According to the minutes, the RBA did consider a potential 25 basis point interest rate hike during the meeting. However, in the end, the central bank chose to keep the current interest rate unchanged.

The decision to maintain the status quo was primarily influenced by the observation that recent economic data did not bring about significant alterations to the economic outlook.

The minutes from the meeting revealed that the central bank is ready to take additional steps to tighten monetary policy if inflation proves to be more persistent than initially expected. Despite this preparedness, the absence of new hawkish signals in the minutes may act as a dampening factor for the Australian Dollar (AUD) when compared to the US Dollar (USD).

People's Bank of China (PBoC) decided to keep the benchmark lending rates unchanged at their monthly fixing, in accordance with the consensus within the market. Specifically, the one-year Loan Prime Rate (LPR), which saw a 10 basis points reduction last month, remains at 3.45%, while the five-year LPR remains stable at 4.20%.

Furthermore, the Vice Chairman of China's National Development and Reform Commission (NDRC), a key state planner stated on Wednesday that "the economy faces a lot of difficulties and challenges."

The key personnel also suggested that the domestic macro-control policies implemented by the government to manage and regulate the domestic economy are effective and they will strive to achieve annual economic growth targets.

US Dollar Index (DXY), which measures the performance of the US Dollar (USD) against the six other major currencies, trades lower near 105.10 at the time of writing. Traders anticipate that the Fed will maintain its current interest rates, shifting their attention to the further guidance provided by the central bank.

The markets have been factoring in the possibility of another 25 basis point rate hike by the end of the year, given the strong performance of US macroeconomic data and persistent inflationary pressures.

The United States (US) economic outlook continues to support higher US Treasury bond yields, which, in turn, are bolstering the US Dollar (USD) and creating headwinds for the AUD/USD currency pair. The US 10-year Treasury yield stands at 4.35% by the press time, below its highest level in 16 years.

The downside potential appears to be somewhat protected as investors seek new indications regarding the Fed's future rate hike plans. This quest for clarity will play a crucial role in shaping the short-term direction of the Greenback.

However, the market sentiment seems to suggest that the Fed is inclined to maintain higher policy rates for an extended period. The market's attention will primarily be on the accompanying monetary policy statement and the remarks made by Fed Chair Jerome Powell during the post-meeting press conference.