AUD/USD STAYS STEADY POST-FED DECISION, MARKETS WEIGH POWELL’S REMARKS

• AUD/USD steady near 0.6566 post-Fed decision to hold rates, signaling cautious 2024 policy outlook.
• Jerome Powell's remarks on inflation, rate cuts contribute to USD recovery, affect Treasury yields.
• Australia's cooling inflation, steady manufacturing PMI inform RBA rate decision prospects, impacting AUD.

The Aussie Dollar (AUD) begins Thursday’s Asian session unchanged versus the US Dollar (USD) as the US Federal Reserve (Fed) decides to hold rates and opens the door to ease policy in 2024. Even though the initial reaction to the statement was muted, Fed’s Chair Powell press conference underpinned the Greenback (USD). At the time of writing, the AUD/USD exchanges hands at 0.6566, almost flat.

Aussie tumbled post Fed decision, though begins Asian session near weekly lows

Risk aversion is driving the financial markets. in the monetary policy statement, the Fed acknowledged that inflation has eased over the last year but remains elevated. Therefore, they stated that rates might have peaked while adding they could ease policy if inflation “moves sustainable toward 2 percent.”

In his press conference, the Fed Chair Jerome Powell adopted a more balanced approach, adding that it’s too early to declare victory on inflation. He added that Fed officials are not confident of lowering rates at the upcoming March meeting, adding that a March cut is not the base case for officials.

After that, the US Dollar paired some of its earlier losses, but US Treasury yields plunged. The AUD/USD edged below the 200-day moving average (DMA) at 0.6574, and achieved a daily close below the latter.

Data-wise, US labor market data witnessed the ADP report showing that private hiring slowed from 158K in December to 107K jobs, below estimates. The Employment Cost Index (ECI) sought by Fed officials as a measure of wages inflation, rose 0.9% QoQ, below estimates of 1.1%. The data suggests the jobs market is easing.

On the Australia front, inflation slowed sharply in the fourth quarter of 2023, from 5.4% YoY to 4.1%, and trimmed mean fell from 5.1% YoY to 4.2%. According to ANZ analysts, this could prevent the Reserve Bank of Australia (RBA) from hiking rates, suggesting the cash rate might have peaked.

Recently, Australia’s Judo Bank Manufacturing PMI final reading for January rose to 50.1 from the preliminary reading of 47.6