AUD/USD struggles to extend upside above 0.6600 ahead of Fed policy, Aussie Inflation data

• AUD/USD aims a stability above 0.6600 amid a busy week.
• The Fed is expected to maintain status-quo for fourth straight time.
• A decline in Australia’s inflation would provide some relief to the RBA.

The AUD/USD pair hovers near the round-level resistance of 0.6600 in the European session. The upside in the Aussie asset remains capped as investors have sidelined ahead of the interest rate decision by the Federal Reserve (Fed) and Australia’s Q4 inflation data.

S&P500 futures have posted nominal losses in the London session, portraying a cautious market mood. The US Dollar Index (DXY) jumps to near 103.64 as deepening geopolitical tensions have improved the safe-haven appeal however, 10-year US Treasury yields have dropped to near 4.12%.

The uncertainty ahead of the Fed’s monetary policy announcement could keep the USD Index upbeat. Investors see the Fed keeping interest rates unchanged in the range of 5.25-5.50% for fourth straight time. Investors would look for whether Fed policymakers will maintain the “restrictive interest rates” narrative or will signal about potential rate-cut in March or May.

Till now, Fed policymakers have been arguing that interest rate-cuts are premature till they get confident that inflation will return to the 2% target in a sustainable manner. Premature rate-cuts could lead to a surge in the overall demand and henceforth prompt price pressures. Apart from the Fed policy, JOLTS Job Openings, ADP Employment Change and the ISM Manufacturing PMI data.

On the Australian Dollar front, investors await the inflation data, which will be published on Wednesday. Investors anticipate that price pressures were up by 0.8% in the last quarter of 2023 against 1.2% growth in the July-September quarter. Easing price pressures would offer some relief to Reserve Bank of Australia (RBA) policymakers.