AUD/USD Remains on the Defensive Around the Mid-0.6500s Ahead of US PPI, Fed Decision

■   AUD/USD remains on the defensive around 0.6558 ahead of the key event.

■   US Consumer Price Index (CPI) for November rose 0.1% MoM and 3.1% YoY, matching expectations.

■   Chinese government emphasized the importance of industrial policy next year, which disappointed investors seeking big stimulus to boost growth.

■   Traders will closely monitor the US PPI and Fed rate decision.

The AUD/USD pair trades in negative territory for the fourth consecutive day around the mid-0.6500s during the early Asian session on Wednesday. The pair faces a rejection after reaching the 0.6600 mark amid modest US Dollar (USD) strength. The Federal Reserve will announce the interest rate decision on Wednesday, with no change in rates expected. The pair currently trades near 0.6558, down 0.02% on the day.

Data from the US Bureau of Labor Statistics revealed on Tuesday that the US Consumer Price Index (CPI) for November rose 0.1% MoM and 3.1% YoY. Both figures aligned with market consensus. The Core CPI, which excludes volatile food and energy prices, climbed by 0.3% MoM and 4.0% YoY, as expected.

The Federal Reserve (Fed) is expected to hold interest rates steady for the third consecutive time at its December meeting on Wednesday. The market will closely watch Fed signals for the future. Fed Chair Jerome Powell is anticipated to push back against expectations for lower interest rates while acknowledging that some progress against inflation is being achieved.

On the Aussie front, Chinese Communist Party leaders began a closed-door meeting on Monday to discuss economic targets and stimulus measures for 2024 and the meeting ended on Tuesday. According to a readout from China's annual economic work conference, no major fiscal stimulus measures were proposed.

Instead, the Chinese government emphasized the importance of technical innovation and artificial intelligence (AI), which disappointed investors seeking big stimulus to boost growth. This, in turn, weighs on the China-proxy Australian Dollar (AUD) and acts as a headwind for the AUD/USD pair.

Looking ahead, market players will keep an eye on the US Producer Price Index (PPI) due later on Wednesday. The annual PPI figure is expected to ease from 1.3% to 1.0% in November, while the PPI rate ex Food & Energy is estimated to drop from 2.4% to 2.2% in November. Later on Wednesday, the Fed will end the monetary policy meeting. Traders will examine Fed Chair Jerome Powell’s comments after the meeting.