Australian Dollar weakens below 0.7150 as markets brace for Fed rate decision

The Australian Dollar (AUD) fell to 0.7120 against the US Dollar (USD) amid market anticipation of the Federal Reserve's (Fed) decision on interest rates. Traders were awaiting the Fed's announcement, which is expected to raise interest rates by 25 basis points (bps). Analyst Carol Kong of the Commonwealth Bank of Australia stated that a 25 bps increase would give the dollar a slight boost.

Fed Chair Kevin Warsh would provide further insight after the policy meeting. Should Warsh downplay concerns about future rate hikes, the Greenback might face pressure in the short-term. Conversely, hawkish comments from Fed officials could strengthen the USD. The Reserve Bank of Australia (RBA) currently has an Official Cash Rate (OCR) of 4.35%, reflecting three consecutive hikes earlier this year.

Nonetheless, there is a growing expectation of further rate hikes due to persistent high inflation. The probability of an OCR increase to 4.60% at the next RBA Board meeting is now at 78%. Analysts at Societe Generale note that the recent bond sell-off has affected Australia, with 10-year yields jumping to 5.41%. The AUD/USD pair is currently above the 100-day simple moving average and the lower Bollinger Band, suggesting a constructive bias. Resistance is at the Bollinger middle band around 0.7170, with support near 0.7125.