AUD to USD Forecast: Australian Monthly CPI Indicator in Focus

Highlights

• The AUD/USD declined by 0.49% on Tuesday, ending the session at $0.66867.
• On Wednesday, the Monthly CPI Indicator will influence bets on an RBA rate cut in 2024.
• Later in the session, Fed commentary needs consideration.

Tuesday Overview of the AUD/USD

The AUD/USD declined by 0.49% on Tuesday. Reversing a 0.10% gain from Monday, the Australian dollar ended the session at $0.66867. The Australian dollar rose to a high of $0.67345 before falling to a low of $0.66770.

Australian Monthly CPI Indicator in Focus

On Wednesday, the Australian Monthly CPI Indicator will warrant investor attention. Hotter-than-expected retail sales figures for November could fuel demand-driven inflation. A pickup in inflationary pressures could force the RBA to consider an interest rate hike to curb spending. Retail sales increased by 2.0% in November after a 0.4% decline in October.

A more hawkish rate path would impact borrowing costs and reduce disposable income. A downward trend in disposable income would curb consumer spending and dampen demand-driven inflation.

However, economists forecast the Monthly CPI Indicator to fall from 4.9% to 4.4% in November. Softer-than-expected inflation could leave the RBA in a holding pattern.

US Economic Calendar: Mortgage Rates and Consumption

Later in the Wednesday session, US mortgage rates need consideration. Downward trends in US mortgage rates could support an upward trend in disposable income. Upward trends in disposable income could fuel consumer spending and demand-driven inflation.

The net effect could be a higher-for-longer interest rate path to impact borrowing costs and reduce disposable income. A downward trend in disposable income could curb spending and dampen demand-driven inflation. According to Freddie Mac, US 30-year mortgage rates sat at 6.62% in the first week of January. 30-year mortgage rates peaked at 7.79% in October.

Beyond mortgage rates, investors must monitor FOMC member commentary. Fed Vice Chair John Williams is on the calendar to speak on Wednesday. References to the US Jobs Report and interest rates need consideration.

Short-Term Forecast

Near-term trends for the AUD/USD will hinge on Australian and US inflation numbers. Sticky Australian inflation and softer US inflation figures would tilt monetary policy divergence toward the Aussie dollar.

AUD/USD Price Action

Daily Chart

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

An AUD/USD breakout from the $0.67286 resistance level would give the bulls a run at the $0.68096 resistance level.

On Wednesday, the focus will be on Australian retail sales figures, central bank commentary, and stimulus chatter from Beijing.

However, a fall through the $0.66500 handle would bring the 50-day EMA and the $0.66162 support level into play.

A 14-period Daily RSI reading of 47.88 indicates an AUD/USD fall to the $0.66162 support level before entering oversold territory (typically above 70 on the RSI scale).

4-Hourly Chart

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

An AUD/USD break above the $0.67286 resistance level and the 50-day EMA would support a move to the $0.68096 resistance level. Selling pressure could intensify at the $0.67286 resistance level. The 50-day EMA is confluent with the resistance level.

However, a drop below the 200-day EMA would give the bears a run at the $0.66162 support level.

The 14-period 4-Hourly RSI at 38.72 suggests an AUD/USD fall through the $0.66500 handle before entering oversold territory.