AUD to USD Forecast: RBA Forward Guidance and Fed Chatter Influences

The RBA, the Australian Labor Market, and China

On Wednesday (May 8), market risk sentiment will likely influence buyer demand for the AUD/USD early in the session.

However, the AUD/USD may remain under pressure due to the less hawkish-than-expected RBA press conference. On Wednesday, the RBA will release its chart pack, which provides investors with graphics of the Australian economy and financial markets.

During the RBA press conference, RBA Governor Michele Bullock discussed tight labor market conditions, household income, and the sticky inflation environment. The graphics will likely illustrate the balancing act the RBA faces. On the one hand, the RBA needs to bring inflation down, but on the other, the RBA wants to avoid adversely impacting the labor market.

Later this week, economic indicators from China will influence sentiment toward the global macroeconomic environment. On Thursday, trade data from China will provide a snapshot of the demand environment. RBA staff consider the Chinese economy in their forecasts. An improving demand environment could be another challenge for the RBA to face in combating inflation.

However, investors must wait until next week for the next round of Australian wage growth and unemployment figures. Deteriorating labor market conditions could prompt a reassessment of the RBA’s wait-and-see strategy.

US Economic Calendar: FOMC Member Speakers in the Spotlight

Later in the Wednesday session, investors should monitor FOMC member speeches. FOMC members Philip Jefferson, Susan Collins, and Lisa Cook are on the calendar to speak.

Views on inflation, the labor market, the economic outlook, and the timing of a Fed rate cut need consideration.

Recent speeches have impacted investor expectations of a September Fed rate cut. Minneapolis Fed President Neel Kashkari released a hawkish new essay on Tuesday (May 7), suggesting a possible need for a Fed rate hike. While the US Jobs Report was weaker than expected, inflation remains the bugbear.

According to the CME FedWatch Tool, the chances of the Fed leaving interest rates unchanged in September increased from 34.3% to 35.5% on Tuesday (May 7).

Short-Term Forecast

Near-term AUD/USD trends will hinge on trade data from China and FOMC member speeches. A more hawkish Fed could tilt monetary policy divergence toward the US dollar. RBA Governor Michele Bullock poured cold water on speculation about an RBA rate hike. The status quo would leave interest rate differentials stacked against the Aussie dollar.

AUD/USD Price Action

Daily Chart

The AUD/USD hovered above the 50-day and 200-day EMAs, sending bullish price signals.

An Aussie dollar return to the $0.66500 handle would support a move toward the $0.67003 resistance level.

The RBA chart pack and FOMC member speeches need consideration.

Conversely, an AUD/USD break below the $0.65760 support level and the 200-day EMA could give the bears a run at the 50-day EMA. A fall through the 50-day EMA would bring sub-$0.65 into view.

With a 14-period Daily RSI reading of 56.76, the AUD/USD may move to the $0.67003 resistance level before entering overbought territory.