I would stay at the Wood Duck Inn, about a 5 minute walk from the centre of the city. However there are cheaper options if you don't mind moving into a flat and commuting.
The hostels right in the CBD tend to be quite expensive and the cheaper ones in the city centre are best avoided. However there are a lot of hostels catering to working travellers that are only about a 10 minute commute from the city in places such as Glebe, Newtown and Balmain. Billabong Gardens in Newtown is a good hostel for a working backpacker.
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