• AUD/USD edges higher during the Asian session on Wednesday, albeit lacks follow-through.
• Elevated US bond yields, along with a softer risk tone, lend support to the USD and cap gains.
• The downside seems cushioned as traders keenly await the highly-anticipated FOMC decision.

The AUD/USD pair attracts some dip-buying following the previous day's late pullback from levels just above the 0.6800 mark, or over a one-month peak and sticks to modest intraday gains through the Asian session on Wednesday. Spot prices, currently trade around the 0.6770-0.6775 region, up over 0.10% for the day, though lack bullish conviction ahead of the key central bank event risk.

The Federal Reserve (Fed) is scheduled to announce its decision later today, at 18:00 GMT and is widely expected to stand pat at the end of a two-day monetary policy meeting. This, in turn, keeps the US Dollar (USD) bulls on the defensive and continues to act as a tailwind for the AUD/USD pair. Meanwhile, the bets for an imminent pause in the Fed's rate-hiking cycle were reaffirmed by the soft US inflation data released on Tuesday, which showed that the headline CPI merely rose in May and the annual rate decelerated to the slowest pace since March 2021.

That said, the year-on-year inflation rate in the US, at 4.0%, is still twice the Fed's 2% target and keeps hopes alive for further policy tightening. In fact, the current market pricing indicates a greater chance of another 25 bps at the July FOMC policy meeting, which remains supportive of elevated US Treasury bond yields. This, along with the pre-Fed anxiety in the markets, lends some support to the safe-haven Greenback. Apart from this, worries about a global economic downturn, particularly in China, cap any further gains for the risk-sensitive Aussie.

The downside for the AUD/USD pair, meanwhile, is more likely to remain cushioned on the back of the Reserve Bank of Australia's (RBA) surprise 25 bps rate hike last week and a more hawkish policy statement. Even from a technical perspective, this week's sustained strength and acceptance above the 100-day Simple Moving Average (SMA) favours bullish traders. This, in turn, suggests that the path of least resistance for spot prices is to the downside and any meaningful corrective pullback might still be seen as a buying opportunity.

Technical levels to watch