Australian Dollar Holds Strong Above Key Level, Eyes on Fed Decision

• The Australian Dollar (AUD) is on edge as it approaches a critical level before the US PPI and Fed policy decision.
• Australia’s Treasurer Jim Chalmers has presented a budget forecast of AUD 1.1 billion in the MYEFO, significantly down from the previous AUD 13.9 billion forecast.
• The US CPI and Core CPI came in as expected at 3.1% and 4.0% YoY, respectively.
• The FOMC is anticipated to keep its policy rates unchanged.

The Australian Dollar (AUD) is facing downward pressure on Wednesday, especially after moderate Consumer Price Index (CPI) data from the United States (US) was released. The AUD/USD pair saw a lot of volatility in the previous session, dropping slightly after briefly exceeding the 0.6600 level. Traders are now eagerly 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.

The Australian government is optimistic about a much-improved budget scenario this year, with forecasting indicating a much smaller deficit of AUD 1.1 billion (USD 721.4 million) for the year ending in June 2024, a significant drop from the AUD 13.9 billion forecasted earlier in the year. The administration is resisting calls for additional cost-of-living aid in order to prevent worsening inflationary pressures.

The US Dollar Index (DXY) is attempting to bounce back from recent losses, helped by a drop in US Treasury yields. The DXY’s descent is largely attributed to the upcoming policy decision from the Federal Open Market Committee (FOMC), which is expected to maintain the status quo. Inflation in the US has cooled as projected, as seen in the Consumer Price Index (CPI) for November. Market participants will be watching closely for cues from Fed Chair Jerome Powell regarding potential interest rate moves in the upcoming year.

• 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 declined to 9 from the previous decrease of 2, providing insights into the short-term performance of the economy.
• 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 Consumer Price Index (CPI) for November rose by 0.1% month-on-month and 3.1% year-on-year, meeting market consensus.
• US Core CPI, excluding volatile food and energy prices, climbed by 0.3% MoM and 4.0% YoY, aligning with expectations.

The Australian Dollar is currently hovering around the major level at 0.6550 on Wednesday.

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