AUD to USD Forecast: Aussie Dollar Eyes Budget Impact amid RBA Rate Speculations

The Australian Budget and RBA

On Tuesday (May 14), the Australian government’s presentation of the 2024-25 Budget will put the investor focus on the AUD/USD.

On Sunday, Treasurer of Australia Jim Chalmers stated that the new Budget would ease household pressure without driving inflation higher.

Significantly, the government forecasts for inflation suggested the need for a less hawkish RBA rate path. The government forecasts inflation returning to the 2-3% range by the end of 2024, not 2025. However, the government had less optimistic forecasts for the Australian economy.

The Budget will likely influence market sentiment toward the RBA rate path. During the RBA press conference, RBA Governor Michele Bullock said the Australian government has inflation in mind vis-à-vis the Budget. Nevertheless, Governor Bullock stated the RBA would be in wait-and-see mode, suggesting possible responses to any surprises in the Budget.

With the Budget in the spotlight, investors should monitor an RBA response.

US Economic Calendar: US Producer Prices and Fed Chair Powell

Later in the Tuesday session, US producer prices will draw investor interest.

Economists forecast US producer prices to increase by 2.2% year-on-year in April after rising 2.1% in March.

Recent consumer inflation expectation numbers have signaled higher consumer price trends. Higher-than-expected producer prices would align with the consumer inflation expectation trends.

Producers increase prices in a rising demand environment, passing the costs onto consumers. The Fed could respond to a higher consumer price outlook with a more hawkish Fed rate path.

With inflation the focal point, investors should also consider comments from Fed Chair Powell. Views on inflation and the timing of a Fed interest rate cut could move the dial.

FOMC member Lisa Cook is also on the calendar to speak on Tuesday. Nevertheless, Fed Chair Powell will likely influence the AUD/USD more.

Short-Term Forecast

Near-term AUD/USD trends will likely hinge on US inflation numbers, Fed Chair Powell, the Australian Budget, and RBA commentary. Hotter-than-expected US inflation numbers could tilt monetary policy divergence toward the US dollar. However, Australian labor market data on Wednesday and Thursday also need consideration.

AUD/USD Price Action

Daily Chart

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

An Aussie dollar break above the $0.66500 handle would support a move toward the $0.67003 resistance level. A breakout from the $0.67003 resistance level could give the bulls a run at the $0.67500 handle.

The Australian Budget, US producer prices, and Fed Chair Powell need consideration.

Conversely, an AUD/USD break below the $0.65760 support level and the 200-day EMA could signal a drop to the 50-day EMA. A fall through the 50-day EMA would bring sub-$0.65 levels into play.

With a 14-period Daily RSI reading of 57.53, the AUD/USD may return to the $0.67003 resistance level before entering overbought territory.