• Federal Reserve will announce interest rate decision at 19:00 GMT.
• US Dollar holds onto losses, US yields move modestly lower.
• AUD/USD retreats after approaching 0.6900 and the 200-day SMA.

The AUD/USD is moving sideways around 0.6860, up for the day, ahead of the Federal Reserve decision on interest rates. The pair is about to post the highest daily close since mid-September but critical events lie ahead.

It is up to the Fed

The Federal Reserve will announce its decision at 19:00 GMT. It is expected to slow the pace of interest rate hikes to 50 basis points. The focus will be on the statement, the macroeconomic forecasts and Powell’s press conference. Analysts will look for clues about the future path of Fed’s policy.

The outcome of the FOMC meeting will play a key role for the Dollar going forward. A more hawkish Fed will likely help USD recover strength while signs about a near-term peak in the rate cycle could boost the AUD/USD pair. On Thursday, Australia will release the November employment report.

The US Dollar looks weak ahead of the FOMC statement after falling sharply on Tuesday following a softer-than-expected US Consumer Price Index reading. In November price pressure continued to ease. Treasuries rallied, the DXY tumbled and AUD/USD jumped to 0.6893, reaching the highest level in almost three months, slightly below the 200-day Simple Moving Average.

The pair then pulled back, finding support above 0.6820. During the last hours, it has been hovering around 0.6860. The bias remains bullish for the Aussie. It needs a daily close above 0.6900 (200-SMA) to clear the way to more gains. On the flip side, below 0.6800 a test of the 20-day SMA at 0.6735 seems likely.

Technical levels