AUD to USD Forecast: Australian Retail Sales and the Middle East in Focus

Highlights

• The AUD/USD rose by 0.18% on Friday, ending the session at $0.63327.
• On Monday, Australian retail sales figures will likely influence bets on an RBA interest rate hike.
• Geopolitics also warrants consideration as fears of an escalation in the Middle East conflict linger.

Friday Overview

The AUD/USD rose by 0.18% on Friday. Following a 0.21% gain on Thursday, the Aussie dollar ended the day at $0.63327. The Aussie dollar fell to a low of $0.63184 before reaching a high of $0.63679.

Australian Retail Sales and RBA Monetary Policy in Focus

On Monday, preliminary Australian retail sales will be in the spotlight. Recent consumer and producer price reports raised bets on an RBA interest rate hike. Retail sales figures for September could pressure the RBA further to hike rates.

Economists forecast retail sales to increase by 0.3% in September (August: 0.2%). An upward trend in consumption would fuel demand-driven inflationary pressure, forcing the RBA to curb spending. Higher interest rates would impact borrowing costs and disposable incomes. A fall in disposable income could lead to a pullback in consumption.

Beyond the economic calendar, news updates on the Middle East conflict will also influence the AUD/USD. An escalation in the conflict would drive buyer demand for the safety of the US dollar.

Dallas Fed Manufacturing Index in Focus Pre-Fed

Recent headline economic indicators from the US have shown a resilient economy. However, sub-components of the reports raised fears of a marked slowdown in growth. The US GDP Report highlighted a fall in disposable income that could impact consumption. US private sector consumption accounts for over 65% of the US economy.

Fear of a marked slowdown in growth will leave the US dollar sensitive to a broader basket of US economic indicators.

On Monday, the Dallas Fed Manufacturing Index will be in focus. Economists forecast the Index to rise from -18.1 to -15.0. The numbers are unlikely to influence the Fed and monetary policy goals. US manufacturing contributes less than 30% to the US economy. However, forward-looking components of the Index may draw investor interest. A deteriorating outlook could fuel fears of a US recession.

Short-Term Forecast

The near-term trends for the AUD/USD hinge on the Fed interest rate decision and forward guidance. However, the Middle East conflict also warrants consideration before the US Jobs Report on Friday.

AUD/USD Price Action

Daily Chart

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

A move through $0.63500 would support a break above the $0.63854 resistance level and 50-day EMA. Higher-than-expected retail sales figures and a de-escalation in the Middle East would fuel the buyer appetite for the Aussie dollar.

However, an AUD/USD fall below $0.63000 would bring the $0.62749 support level and the trend line into play. Weaker-than-expected retail sales figures and an escalation in the Middle East conflict could pressure the AUD/USD.

A 14-period Daily RSI reading of 46.63 suggests a move to the trend line and $0.62749 support level before entering oversold territory (typically below 30 on the RSI scale).

4-Hourly Chart

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

A return to $0.63500 would support a break above the 200-day EMA and $0.63854 resistance level.

However, a fall below $0.63000 would bring the $0.62749 support level and the trend line into play.

The 14-period 4-Hourly RSI at 51.75 suggests an AUD/USD move to the 200-day EMA and $0.63854 resistance level before entering overbought territory.