The Australian dollar made modest gains on Wednesday with all eyes on the US Federal Reserve's rate-setting committee, which is widely expected to provide further stimulus to the struggling economy and financial markets. The Fed is likely to focus on quantitative easing policies at its latest meeting after the target range for federal funds rate was cut to zero last month.
Fresh action from the Fed could give the US dollar a short-term boost, but should also improve investor risk appetite and draw investors back into higher-yielding currencies like the Australian dollar in the longer run, analysts said. "The Aussie was pretty rangebound with everyone waiting for the Fed," said Katie Dean, senior market economist at ANZ.
"Any policy move should provide a bit of a relief rally for the US dollar and support views that the US economy will probably be first out of the downturn." Earlier, the Aussie had dipped after domestic data showed fourth-quarter consumer prices fell 0.3 percent.
The drop in the consumer price index, the biggest since 1997, backed views the Reserve Bank of Australia will opt for at least a 75 basis points rate cut when its monetary policy board meets early next week.
The Aussie was trading at $0.6656, having dropped to $0.6617 after the inflation data. It had advanced to as high as $0.6720 offshore, well above $0.6636 late here on Tuesday. The Aussie was broadly steady at 59.37 yen, supported by firmer stock markets. The Australian currency tends to gain when markets are less risk averse as investors seek out assets still offering reasonable yield returns.
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