AUD to USD Forecast: Australian Dollar Eyes Chinese Economic Shifts

Highlights

• AUD/USD gained 0.36% on Friday, countering Thursday’s 0.49% loss; closed at $0.64390.
• Beijing’s economic reforms are crucial to the Aussie, drawing intense investor focus.
• AUD’s fate interlinked with China, accounting for one-third of Aussie exports.

Friday Overview

On Friday, the AUD/USD gained 0.36%. Partially reversing a 0.49% loss from Thursday, the Aussie dollar ended the day at $0.64390. The Aussie dollar fell to a low of $0.64037 before rising to a high of $0.64652.

China Economic Reforms and Australian Economic Resilience

The market focus will likely remain on China at the start of this week. Updates from Beijing on economic reform plans would draw investor interest. A favorable outlook toward the Chinese economy would be a boon for the Aussie dollar.

China accounts for one-third of Australian exports. Significantly, the Australian trade-to-GDP ratio of 50% fuels AUD/USD sensitivity to the Chinese economy.

Recent economic indicators from China and the prelim private sector PMIs from Australia show early signs of a pickup in economic activity. Further evidence of an improving macroeconomic environment and Beijing reforms would counter the influence of the Fed.

Hawkish Fed Bets Leaves the US Dollar in the Driving Seat

Despite the weaker-than-expected service PMI on Friday, bets on further Fed rate hikes remain intact. Tight labor market conditions support wage growth, leaving a hawkish Fed outlook intact. Elevated wage growth fuels spending and demand-driven inflation.

Higher interest rates would impact labor market conditions and wage growth. A pullback in wage growth would adversely affect consumer spending and ease demand-driven inflationary pressures.

Later today, the focus will be on the Chicago Fed National Activity Index and the Dallas Fed Manufacturing Index. Strong numbers could test buyer appetite for AUD/USD. However, as the US manufacturing sector constitutes 20% of the GDP, the Chicago Fed numbers should have more impact on Fed predictions.

Short-Term Forecast

Monetary policy and economic divergence remain tilted toward the US dollar. This week, US economic indicators and updates from Beijing on economic reforms will dictate the near-term AUD/USD trends. Cracks in the US economy and progress toward economic reforms would offer AUD/USD support.

AUD/USD Price Action

Daily Chart

The AUD/USD remained below the 50-day and 200-day EMAs, sending bearish price signals.

An AUD/USD fall to sub-$0.64 would support an AUD/USD break below the $0.63854 support level. Market risk sentiment and US economic indicators will dictate direction today.

However, an AUD/USD break above the $0.64900 resistance level and 50-day EMA would bring $0.6550 into view. Selling pressure will likely build at $0.64900, with the 50-day EMA confluent with the $0.64900 resistance level.

An RSI reading of 48.43 supports an AUD/USD fall through the $0.63854 support level before entering oversold territory (typically below 30 on the RSI scale).

4-Hourly Chart

The AUD/USD sits above the 50-day EMA while remaining below the 200-day EMA, sending bullish near-term but bearish longer-term price signals.

A break above the 200-day EMA would support an AUD/USD move to the $0.64900 resistance level. However, a fall through the 50-day EMA would give the bears a run at the $0.63854 support level. A break below the $0.63854 support level would bring $0.63500 and the trend line into view.

The 14-period 4-Hourly RSI at 51.88 supports an Aussie dollar return to $0.65 before entering overbought territory.