AUD/USD jumps to near 0.6750 with Fed policy takes centre stage

• AUD/USD gains to near 0.6750 as Fed big rate cut bets swell.
• US Jon Faust showed a preference for a 50 bps rate cut on Wednesday if officials plan for the same in the last quarter.
• Investors expect the Australian jobless rate to have remained steady at 4.2%.

The AUD/USD pair rises sharply to near 0.6750 in Monday's European session. The Aussie asset surges at US Dollar' expense as the latter faces a sharp selling pressure, with investors focusing on the Federal Reserve's (Fed) monetary policy meeting, which is scheduled for Wednesday. The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, tumbles below 100.70.

The Fed is almost certain to start reducing interest rates but traders remain divided over the likely interest rate cut size. Softer-than-expected United States (US) Producer Price Index (PPI) data for August and persistent concerns over slowing labor market conditions have recently prompted market expectations for the Fed to reduce interest rates by 50 basis points (bps) to 4.75%-5.00%.

According to the CME FedWatch tool, the probability for the Fed reducing interest rates by 50 bps has increased sharply to 57% from 30% a week ago.

Fed jumbo rate cut prospects have also been prompted after the interview of Jon Faust, a recent senior adviser to Fed Chairman Jerome Powell, to Wall Street Journal (WSJ) in which he comments indicated that the central bank should start the policy-easing cycle with 50 bps now rather than in November or December as expected by some officials, with current rates remaining far from their ultimate destination.

In the Aussie region, the Australian Dollar (AUD) will be influenced by the Employment data for August, which will be published on Thursday. The Unemployment Rate is estimated to have remained steady at 4.2%. Fresh payrolls are expected to come in at 25.5K lower than the prior release of 58.2K.