• The Australian Dollar extends its upside due to improved risk sentiment ahead of the Fed decision.
• The Reserve Bank of Australia’s hawkish stance supports the Aussie Dollar.
• The US Dollar struggles due to rising odds of a 50 basis points Fed interest rate cut on Wednesday.

The Australian Dollar (AUD) extends its upside for the third successive day against the US Dollar (USD) on Wednesday. Investors await the Federal Reserve (Fed) interest rate decision later in the day, although rising expectations of a 50 basis points cut should support risk-sensitive currencies like AUD.

The AUD/USD pair may advance further as the Australian Dollar remains supported by the Reserve Bank of Australia's (RBA) hawkish stance. RBA Governor Michele Bullock stated that it is premature to consider rate cuts due to persistently high inflation. Additionally, RBA Assistant Governor Sarah Hunter noted that while the labor market remains tight, wage growth appears to have peaked and is expected to slow further.

The Federal Reserve is expected to lower interest rates at its September meeting, following a steady rate range of 5.25% to 5.5% since July 2023. The CME FedWatch Tool indicates that markets are assigning a 33.0% probability to a 25-basis-point rate cut, while the likelihood of a 50-basis-point cut has risen to 67.0%, up from 62.0% just the previous day.