AUD/USD gauges a cushion around 0.6760 ahead of Fed’s policy, risk-off mood still solid

• AUD/USD is finding immediate support after dropping from above 0.6800 amid a cautious market mood.
• Fed policymakers are advocating a deceleration in policy tightening pace to reduce financial risks.
• Australian Employment Change is seen higher at 46.5K while the jobless rate is seen lower at 3.3%.

The AUD/USD pair is looking for a cushion after dropping from above the round-level resistance of 0.6800 in the Asian session. The Aussie asset is building a cushion around 0.6760, however, the bewildering inventory adjustment activity could turn into a further downfall ahead as the risk-off impulse is still solid and has not displayed any sign of exhaustion yet.

Meanwhile, the US Dollar Index (DXY) is aiming to extend its gains above the immediate hurdle of 105.20 as investors are hiding behind safe haven to dodge anxiety ahead of the monetary policy decision by the Federal Reserve (Fed), which is due on Wednesday.

S&P500 futures have turned cautious as the Fed is set to tighten policy further. While the 10-year US Treasury yields have surrendered their gains and have dropped to 3.56% as the odds are favoring a less hawkish commentary from Fed chair Jerome Powell.

Less-than-projected October’s inflation report, decline in Producer Price Index (PPI) data, and a  serious decline in consumer spending in the United States economy favor a slowdown in the current pace of the interest rate hike by the Fed. Also, Fed policymakers are advocating a deceleration in policy tightening pace to reduce financial risks.

On the Aussie front, investors are shifting their focus toward the speech from Reserve Bank of Australia (RBA) Governor Philip Lowe, which is scheduled for Wednesday. The speech from RBA Governor will provide cues about the likely monetary policy action in the first monetary policy meeting of CY2023.

Apart from that, Australian employment data will be released on Thursday. The Employment Change is seen higher at 46.5K vs. the prior release of 32.2K. Also, the Unemployment Rate is seen lower at 3.3%. Upbeat payroll data is going to delight the RBA in hiking its interest rates further.