AUD/USD extends the decline to near 0.6350 as Fed rate decision looms

• AUD/USD trades in negative territory around 0.6355 in Monday's early Asian session. 
• The Fed is expected to cut the rate by 25 bps at its December meeting on Wednesday. 
• The dovish stance of the RBA undermines the Aussie. 

The AUD/USD pair extends its downside to near 0.6355 during the early Asian session on Monday, pressured by the firmer Greenback. Traders will keep an eye on the preliminary US December Purchasing Managers Index (PMI) on Monday ahead of the Federal Reserve (Fed) interest rate decision. 

The two-day Fed meeting ends Wednesday with an expected 25 basis points (bps) cut. Analysts expect the US central bank to cut whilst preparing the market for a pause as the US economy is robust and progress on inflation may be stalling above 2%. Markets are now almost fully pricing a 25 basis points (bps) cut at the Fed's December meeting, compared with about 78% odds a week ago, according to the CME FedWatch tool.

The Fed Chair Jerome Powell's press conference and Dot Plots will be closely monitored. Any hawkish remarks from Fed officials could lift the US Dollar (USD) and act as a headwind for the pair. Powell maintained a cautious tone earlier this month, saying, "We can afford to be a little more cautious as we try to find neutral." Powell signaled that he is not in a hurry to reduce rates. "The economy is strong, and it's stronger than we thought it was going to be in September," said Powell.

On the other hand, the dovish tilt in the Reserve Bank of Australia's (RBA) stance weighs on the Aussie. Traders raise their bet that the RBA will cut interest rates sooner and likely deeper than initially expected. Nonetheless, future decisions will be data-driven, with evolving risk assessments shaping the RBA's approach.

Additionally, Chinese authorities led by President Xi Jinping vowed to raise the fiscal deficit target next year with a shift of policy focus to consumption in an effort to boost the economy as looming US tariffs threaten exports. Investors are hoping for fiscal support as monetary measures disappoint and lack concrete details on policies, dragging the Australia Dollar (AUD) lower against the USD.