AUD/USD dips as Fed disregards rate cuts despite inflation progress

• AUD/USD drops to 0.6516 before recovering, trading around 0.6500-0.6540 after Fed's "hawkish" hold.
• Fed acknowledges inflation progress but remains cautious, strengthening the US Dollar.
• Key resistance at 0.6524, 0.6532, and 0.6541 (50, 100, 200-hour SMAs); support below 0.6500 with potential to test 0.6479 and 0.6450 levels.

The AUD/USD extended its losses and tumbled after the Federal Reserve, despite holding rates unchanged, resisted lowering borrowing costs. Officials recognized the progress on inflation but are not fully confident in beginning the easing policy. The pair trades at around 0.6500-0.6540 down ahead of Fed Chair Powell's press conference.

AUD/USD pressures to 0.6500; will Powell push prices lower?

Powell and Co. delivered a “hawkish” hold, even though they made some changes to the monetary policy statement. Nevertheless, stating that  “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent” strengthened the US Dollar, which has trimmed some of its losses.

The Federal Reserve acknowledged that inflation has eased somewhat over the year but “remains somewhat elevated.” Policymakers noted that the dual mandate risks have become more balanced and that “the Committee is attentive to the risks to both sides of its dual mandate.”

Regarding its balance sheet reduction, the Committee stated it “will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities.” The Fed reinforced its commitment to returning inflation to its 2% objective.

AUD/USD Reaction to Federal Reserve’s decision

The AUD/USD trades volatile and fell to 0.6516 on the Fed’s policy statement release, yet has recovered some ground, yet faces key resistance levels at the 50, 100, and 200-hour SMAs, each at 0.6524, 0.6532, and 0.6541.

If Powell turns dovish, those levels could be cleared and will expose the 0.6600 figure. Otherwise, further AUD/USD weakness could cause the pair to fall beneath 0.6500 and test today’s low of 0.6479, followed by the 0.6450 psychological level.