AUD/USD seesaws near 0.6850 as pre-Fed anxiety probes RBA Governor Lowe’s optimism

• AUD/USD fails to cheer positive economic expectations of RBA Governor Philip Lowe near a three-month high.
• RBA’s Lowe appears optimistic on cross-border payments, economic growth due to the same.
• US inflation bolstered case of slower Fed rate hikes and drowned the US Dollar ahead of FOMC.
• China-linked headlines, pre-Fed caution probe Aussie Dollar bulls.

AUD/USD treads water around 0.6855 during early Wednesday, after a volatile day that offered the biggest jump in a fortnight and refreshed a three-month low.

While the downbeat US inflation number propelled the Aussie pair, chatters surrounding China and the cautious mood ahead of the Federal Open Market Committee (FOMC) monetary policy meeting test momentum traders.

It’s worth noting that Reserve Bank of Australia (RBA) Governor Philip Lowe spoke recently at the AusPayNet Annual Summit. "Overall, we are optimistic that least-cost routing will help counter the forces that are adding to merchants' payment costs, particularly for small businesses," Lowe said per Reuters.

That said, US Consumer Price Index (CPI) dropped to 7.1% YoY in November versus the 7.3% expected and 7.7% prior. Further, the CPI ex Food & Energy, known as the Core CPI, also declined to 6.0% YoY during the stated month compared to 6.1% market forecasts and 6.3% previous readings. “Traders of futures tied to the Federal Reserve’s policy rate boosted bets Tuesday that the U.S. central bank will notch down its interest-rate hike pace further early next year, after a government report showed inflation eased sharply in November,” said Reuters. The same drowned the US Dollar Index (DXY) to a six-month low of 103.61 and fuelled the AUD/USD prices before the quote retreated from 0.6893.

Elsewhere, the International Monetary Fund (IMF) Managing Director Kristalina Georgieva was spotted expecting slower economic growth for China due to the latest jump in the daily Covid cases. Additionally, Bloomberg came out with the news suggesting that the Chinese leaders delayed the economic policy meeting due to the COVID-19 problems.

Furthermore, increasing chatters that today’s Fed rate hike worth 50 basis points (bps) rate increase is the last and the US central bank is up for slowing down the rate lift from 2023-start keep the traders on the edge.

Amid these plays, Wall Street closed positive and the US 10-year Treasury yields slumped nearly 11 basis points (bps) to 3.50% by the end of Tuesday’s North American session.

Looking forward, AUD/USD could remain sidelined amid the pre-FOMC cautious mood. However, increasingly dovish expectations raise fears of a wild slump in case of a hawkish surprise from the Fed.

Technical analysis

A daily closing beyond the one-month-old ascending resistance line, near 0.6885 by the press time, becomes necessary for the bulls to keep the reins. However, the bears will wait for a clear break of the 100-DMA support, near 0.6675 at the latest, to take the risk of entry. Hence, AUD/USD may witness further grinding towards the north.