AUD/USD declines for the third straight day, with focus on Fed Minutes

• AUD/USD experiences its third consecutive day of losses.
• Australian inflation remains steady in April, while hawkish Fed comments support the Greenback
• Monetary policy divergence and rate expectations set the stage for the pair's potential next move.

The Australian Dollar (AUD) is facing a notable decline against the US Dollar (USD) on Wednesday as markets process the latest inflation data from Australia and anticipate the Federal Reserve's (Fed) forthcoming decisions. At the time of writing, AUD/USD trades at 0.6421, down 0.33% in the day.

With policy divergence becoming more pronounced, the AUD/USD pair is poised to record its third consecutive day of losses.

AUD/USD remains tied to monetary policy, interest rates, and inflation

In the United States (US), focus shifts to the release of the Federal Open Market Committee  (FOMC) Meeting Minutes from the May rate decision, which may offer greater clarity on the Fed's policy outlook amid persistent inflation and the Trump administration's trade policies.

Looking ahead, any unexpected developments from the FOMC Minutes are likely to impact market expectations.

If rate predictions stabilize and market participants anticipate a rate cut in September, attention will shift to the upcoming economic reports from the US. 

These will include the second preliminary reading of the Gross Domestic Product (GDP) for the first quarter, as well as the US Personal Consumption Expenditure (PCE) data and Michigan Sentiment index, both set to be released on Friday.

Australian CPI data overshadowed by hawkish Fed

On Wednesday, the Australian Bureau of Statistics released the April Monthly Consumer Price Index (CPI) figures. The monthly CPI remained steady at 2.4% in the year to April, the same figure as in March and above the forecast of 2.3%. Those figures remain in the Reserve Bank of Australia's (RBA) target range of 2-3%, and markets still price another rate cut at the next meeting in July. Following the reduction of Australia's Cash Rate to 3.85% during the May 20 meeting, the Federal Funds Rate in the US remains in the range of 4.25% to 4.50%, which has supported higher yields in the US. 

The Fed has maintained a hawkish stance, emphasizing its commitment to being 'data-dependent,' which has limited any significant losses for the USD. 

Moreover, trade dynamics between the European Union (EU) and the United States appear to be improving, fostering optimism regarding a potential trade agreement between the two economic powers. 

Conversely, for Australia, which relies heavily on trade with China, indicators of economic weakness in China have direct ramifications for the AUD.