AUD/USD was slightly higher during Thursday’s Asian session, trading around 0.6440, after falling more than 1% in the previous session. The pair hit a five-month high of 0.6514 on Wednesday but retreated on the Federal Reserve's cautious policy outlook. As expected, the Fed kept interest rates unchanged at 4.25%–4.50%, but its statement acknowledged the growing risks associated with inflation and unemployment, injecting new uncertainty into the market.

Sentiment was further dampened following a press conference by Federal Reserve Chairman Jerome Powell, who noted that U.S. trade tariffs could hamper the Fed's inflation and employment goals through 2025. Powell said continued policy instability could force the Fed to take a more patient "wait-and-see" stance on future interest rate adjustments. While tariffs under the Trump administration have dampened consumer and business confidence, the lack of notably weak economic data has made it harder for the Fed to justify recent policy changes.

The Fed's statement reinforced its data-dependent approach, calling inflation "somewhat elevated" and noting that risks to both inflation and employment had increased. This cautious outlook, coupled with the Fed's continued balance sheet reduction, has reinforced the strength of the US dollar (USD), putting pressure on AUD/USD.

Additional pressure on the AUD/USD pair comes as U.S. Treasury Secretary Scott Besant and Trade Representative Jamison Greer are set to meet with Chinese Vice Premier He Lifeng in Geneva this weekend – the first high-level U.S.-China talks since the tariff-driven trade dispute escalated.

Despite the pullback, the Australian dollar (AUD) remained supported by optimism over a potential breakthrough in US-China trade relations, given Australia’s significant trade relationship with China. Further boosting sentiment, the People's Bank of China announced plans to cut key lending rates and reduce banks' reserve requirements in a bid to stimulate economic growth.

The Australian Industry Group index improved in April but still marked the 33rd straight month of contraction. Manufacturing, especially in export-dependent sectors. The developments have reinforced market expectations that the Reserve Bank of Australia (RBA) may cut the cash rate by 25 basis points to 3.85% later this month.