• AUD/USD tussles between risk-off mood and RBA’s hawkish guidance.
• The RBA kept doors open for further policy tightening to ensure a return of inflation towards the 2% target.
• Fed Mester could stick to pushing back rate-cut hopes.

The AUD/USD pair faces pressure in holding an auction above the crucial support of 0.6500 in the late European session on Tuesday. The Aussie asset struggles despite the Reserve Bank of Australia (RBA) delivering hawkish guidance on interest rates.

The RBA kept its Official Cash Rate (OCR) unchanged at 4.35%, leaving doors open for further policy tightening. In the monetary policy statement, RBA Governor Michele Bullock said rate cuts will be discussed only after the board gets convinced that inflation will return to the desired range.

It was surprising to see the RBA delivering a hawkish outlook on key rates despite easing price pressures. In the last quarter of 2023, the RBA Trimmed mean CPI, a closed-watched measure for core inflation, grew at a slower pace of 0.8 % against expectations of 0.9% and from a 1.2% increase in the July-September quarter on a month-on-month basis. Annually, the underlying inflation softened to 4.2% from the former reading of 5.2%.

Meanwhile, the market mood remains broadly downbeat as investors see the Federal Reserve (Fed) not rushing for aggressive rate cuts. The US Dollar Index (DXY) hovers near an 11-week high of around 104.50 and is expected to extend upside further.

Going forward, investors will focus on the speech from Cleveland Federal Reserve Bank President Loretta Mester for fresh guidance on interest rates. Loretta Mester is expected to push back expectations of early rate cuts to avoid the consequences of persistent price pressures.