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The Australian Dollar (AUD) is trading sideways against the US Dollar (USD) on Wednesday, as the Greenback finds some footing ahead of the Federal Reserve’s interest rate decision due at 19:00 GMT. At the time of writing, AUD/USD trades near 0.7000, holding near its highest level since February 2023.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 96.25, stabilizing after hitting a four-year low of 95.56 on Tuesday.

Markets are fully pricing in the Fed to keep interest rates unchanged at the 3.50%–3.75% range, following three consecutive 25-basis-point rate cuts delivered last year. At the December meeting, Fed Chair Jerome Powell reiterated that the central bank is "well-positioned to wait and see how the economy evolves."

Since the last Fed meeting, US data have strengthened the view that the central bank can afford to remain patient, with inflation easing only gradually and labour market conditions remaining broadly resilient.

While no change in rates is expected, attention will be firmly on Fed Chair Jerome Powell’s post-meeting press conference for guidance on the monetary policy outlook, with markets still anticipating two rate cuts later this year. Signals of a prolonged pause could lift the US Dollar and pressure the Aussie, while any tilt toward gradual easing would likely support AUD/USD.

In Australia, the hotter-than-expected inflation data reinforced market bets that the Reserve Bank of Australia’s (RBA) next move could be a rate hike. Headline Consumer Price Index (CPI) rose 1.0% MoM in December, rebounding from flat growth in November and beating forecasts of a 0.7% increase. On a yearly basis, inflation accelerated to 3.8% from 3.4%, coming in above expectations of 3.6%.

Trimmed mean CPI rose 0.2% MoM in December, matching forecasts but easing from November’s 0.3% increase. On a yearly basis, core inflation edged up to 3.3% from 3.2%, remaining above the RBA’s 2-3% target band.

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