Australian Dollar moves sideways with a negative sentiment ahead of Fed decision

• Australian Dollar hovers above a major level ahead of US PPI, Fed policy decision.
• Australia’s Treasurer Jim Chalmers presented a budget forecast of AUD 1.1 billion in the MYEFO, down from the AUD 13.9 billion previous forecast.
• US CPI and Core CPI came in at 3.1% and 4.0% YoY, respectively, as expected.
• FOMC is expected to make no change in its policy rates.

The Australian Dollar (AUD) makes efforts to recover its recent losses on Wednesday, particularly after the release of moderate Consumer Price Index (CPI) data from the United States (US). The AUD/USD pair exhibited high volatility in the previous session, experiencing a modest drop after briefly surpassing the 0.6600 level. Market participants are now awaiting the release of the US Producer Price Index (PPI) and the Federal Reserve's (Fed) Interest Rate Decision later in the North American session.

Australia's government anticipates a significantly improved budget bottom line this year as revenues outpace forecasts. In the mid-year economic and fiscal outlook (MYEFO) presented by Labor Treasurer Jim Chalmers, a budget deficit of just AUD 1.1 billion (USD 721.4 million) in the year to end June 2024 is projected, down from the AUD 13.9 billion forecasted back in May. The government is resisting calls for additional cost-of-living handouts to avoid exacerbating inflationary pressures.

The US Dollar Index (DXY) encounters challenges attributed to downbeat US Treasury yields. The DXY has experienced a modest drop, with the Federal Open Market Committee (FOMC) anticipated to make no adjustments in its last policy decision. Inflation in the US cooled as expected in November, as indicated by the Consumer Price Index (CPI). Investors will likely closely monitor Fed Chair Jerome Powell’s comments for signals about potential rate adjustments in the coming year.

Daily Digest Market Movers: Australian Dollar moves downward amid hawkish RBA

• ANZ-Roy Morgan Australian Consumer Confidence weekly survey rose to 80.8 from the previous week's 76.4.
• Westpac Consumer Confidence for December showed improvement at 2.7% from the previous decline of 2.6%.
• National Australia Bank Business Confidence, which surveys the current business conditions in Australia and provides insights into the short-term performance of the overall economy, declined to 9 from the previous decrease of 2.
• RBA Governor Michele Bullock expressed confidence, stating, "Don't think we are falling behind in the inflation fight." Bullock emphasized a cautious approach, closely monitoring data, and highlighted the RBA's commitment to preserving employment gains.
• US Bureau of Labor Statistics revealed on Tuesday that the US Consumer Price Index (CPI) for November rose by 0.1% month-on-month and 3.1% year-on-year. Both figures aligned with market consensus, indicating that inflation levels met expectations.
• US Core CPI, which excludes volatile food and energy prices, climbed by 0.3% MoM and 4.0% YoY, in line with expectations.

Technical Analysis: Australian Dollar hovers above the major level at 0.6550

The Australian Dollar trades around 0.6560 on Wednesday. The 21-day Exponential Moving Average (EMA) at 0.6554 serves as a key support level before the significant level at 0.6550. If this support area is breached, it could exert downward pressure on the AUD/USD pair, potentially leading it toward the 38.2% Fibonacci retracement level at 0.6526. On the upside, the region around the psychological level at 0.6600 is likely to act again as a potential resistance barrier.

AUD/USD: Daily Chart