AUD to USD Forecast: China Inflation, the US CPI Report, and the Fed in Focus

China Inflation Trends, the Australian Economy, and the RBA

On Wednesday, consumer and producer prices will likely influence buyer appetite for the AUD/USD.

Economists forecast producer prices to fall 1.8% year-on-year in May after declining 2.5% in April.

Furthermore, economists expect consumer prices to increase 0.3% year-on-year in May after a rise of 0.3% in April.

Month-on-month, economists predict consumer prices to fall by 0.2%. Consumer prices advanced by 0.1% in April.

Upward trends in producer prices could signal an improving demand environment. Producers adjust prices in response to demand, impacting consumer prices. However, consumer price trends are also significant. Higher consumer prices would also signal an improving macroeconomic environment.

A pickup in demand from China could boost the Australian economy and the Aussie dollar. China accounts for one-third of Australian exports. Australia has a trade-to-GDP ratio above 50%, with 20% of its workforce in trade-related jobs.

Tighter Australian labor market conditions may support wage growth and increase disposable income. Higher disposable income could fuel consumer spending and demand-driven inflation. Private consumption contributes over 50% to the Australian economy. A higher inflation outlook may also draw the attention of the RBA, which is grappling with a sticky inflation environment.

US Economic Calendar: US CPI Report and the Fed

Later in the session on Wednesday, US inflation numbers and the Fed will be in the spotlight.

Economists forecast the US annual inflation rate to remain at 3.4% in May. Furthermore, economists expect the core inflation rate to soften from 3.6% to 3.5%. Hotter-than-expected numbers could reduce investor expectations of a September Fed rate cut.

A more hawkish Fed rate path may increase borrowing costs and reduce disposable income. Moreover, downward disposable income trends could affect consumer spending and dampen demand-driven inflation.

The US dollar will likely show increased sensitivity to the CPI Report. Late into the US session, the FOMC interest rate decision, economic projections, and the press conference will move the dial.

Economists expect the Fed to stand pat in June, putting the economic projections and press conference in the spotlight.

More hawkish economic projections and a hawkish Fed Chair could fuel a US dollar breakout amidst falling bets on multiple 2024 Fed rate cuts.

Short-Term Forecast

Near-term AUD/USD trends will depend on the US inflation numbers and the FOMC economic projections. Higher-than-expected inflation figures and more hawkish economic projections could tilt monetary policy divergence toward the US dollar.

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 return to the $0.66500 handle could give the bulls a run at the $0.67003 resistance level. A breakout from the $0.67003 resistance level would support a move toward the $0.67500 handle.

Inflation figures from China, the US CPI Report, and the FOMC economic projections need consideration.

Conversely, an AUD/USD break below the 50-day EMA could bring the 200-day EMA and the $0.65760 support level into play.

With a 14-period Daily RSI reading of 48.35, the AUD may drop below the $0.65500 handle before entering oversold territory.