AUD/USD remains subdued near 0.6350 as focus shifts to Fed policy outlook

• AUD/USD struggles around 0.6350 as the US Dollar gains further.
• Fed's policy-easing cycle is expected to stall in January.
• The Australian Dollar is also performing strongly as traders pare RBA dovish bets.

The AUD/USD pair exhibits a subdued performance in Friday's European session. The Aussie pair stays under pressure as the US Dollar (USD) performs strongly on expectations that the Federal Reserve (Fed) will shift its policy stance from "dovish" to "slightly hawkish" after cutting interest rates in the policy meeting on Wednesday.

The US Dollar Index (DXY), which gauges the Greenback's value against six major currencies, gains for the sixth trading day in a row on Friday and climbs above 107.00.

Traders fully price in the Fed to reduce its key borrowing rates by 25 basis points (bps) to 4.25%-4.50% on Wednesday and are confident about leaving them unchanged in the January meeting, according to the CME FedWatch tool.

"The recent slowdown in the pace of US disinflation, a lower Unemployment Rate than what the Fed projected in September, and exuberance in US financial markets are contributing to this more hawkish stance," analysts at Macquire said.

Meanwhile, the Australian Dollar (AUD) is also performing strongly against a majority of its peers as upbeat Australian employment data for November has forced traders to pare bets that the Reserve Bank of Australia (RBA) will start reducing interest rates from the February meeting.

The Australian economy added 35.6K workers, higher than estimates of 25K and the former release of 12.1K. The Unemployment Rate surprisingly fell to 3.9% from 4.1% in October, which was expected to accelerate to 4.2%.

Apart from domestic strength in the AUD, People's Bank of China's (PBoC) resolute to prevent the risk of exchange rate overshooting has also offered some support. China's lower exchange rate would make their exports competitive in global markets, a scenario that is favorable for the Australian Dollar being a leading trading partner of China.