Aussie dips as business confidence slides

The Australian dollar has reversed directions on Wednesday and is trading in red territory. Currently, AUD/USD is trading at 0.7724, down 0.24% on the day.

Business Confidence plunges

In Australia, business sentiment sank in December, according to the National Australia Bank Business Confidence index. The December reading fell to 4, down sharply from 12 beforehand. This was a disappointment, as business confidence had been steadily rising in H2 of 2020. The NAB attributed the sharp decline to the Covid outbreak in Sydney in December, which necessitated a lockdown. Despite the erosion in business confidence, the NAB survey found that business conditions jumped from 7 to 14, and employment conditions moved to positive territory for the first time since the Covid pandemic.

On the inflation front, CPI slowed in Q4, falling from 1.6% to 0.9%. Still, the reading managed to beat the estimate of 0.7%. The Australian dollar showed slight gains after the release but then retreated, as the reading, despite beating the estimate, failed to make an impression on investors.

Fed up to bat next

Today’s highlight event is the Federal Reserve policy meeting, the first of 2021 (19:00 GMT). The markets are all set for a dovish message from the Fed, but it remains to be seen if Powell & CO. will be more dovish than what investors want to hear. There have been rumblings that the Fed might taper its QE scheme late this year. If Powell fails to dispel such speculation, that could trigger a taper tantrum which would boost the US dollar. Conversely, if the Fed pours cold water on tapering, the dollar would likely come under pressure. Either way, we could some volatility from the US dollar in the North American session.

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AUD/USD Technical

AUD/USD remains range-bound, with support and resistance levels remaining in place.

• 0.7778 has strengthened in resistance, following losses by AUD/USD. Next, there is resistance at 0.7842
• There is support at 0.7655. Below, we have support at 0.7596
• The 50-day moving average (MA) is situated at 0.7555

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