AUD/USD pulls away from 15-month highs, clings to small gains around 0.7170

• AUD/USD rose to its highest level in more than a year at 0.7194.
• Annual inflation in Australia dropped to -0.3% in second quarter.
• US Dollar Index turns flat near 93.70 ahead of FOMC.

After closing the day with small gains at 0.7158 on Tuesday, the AUD/USD pair stretched higher and rose to its best level since April 2019 at 0.7194 on Wednesday. However, with the greenback starting to recover its losses against its rivals, the pair edged lower in the last hours and was last seen gaining 0.13% on the day at 0.7166.

Earlier in the day, the data from Australia showed that inflation, as measured by the Consumer Price Index (CPI), slumped from 2.2% to -0.3% on a yearly basis in the second quarter. This reading came in slightly lower than the market expectation of 0.4% and was largely ignored by the market participants, who remained focused on the USD’s performance.

DXY’s downside remains limited ahead of FOMC

In the absence of significant macroeconomic data releases, the greenback continued to react to movements in the US Treasury bond yields on Tuesday. With the Federal Reserve announcing its decision to extend its lending facilities by three months to the end of the year, the 10-year US T-bond yield lost nearly 6% and didn’t allow the US Dollar Index (DXY) to stage a rebound.

Although the DXY dropped to its lowest level in more than two years at 93.40 on Wednesday, it erased its daily losses and turned flat around 93.70 ahead of the American session. 

Later in the day, the FOMC will conclude its two-day meeting and release its policy statement. Markets don’t expect the Fed to make any significant changes in its forward guidance or the policy outlook. In the early Asian session on Thursday, Building Permits data will be featured in the Australian economic docket.

Technical levels to watch for