AUD to USD Forecast: China Stats and US Labor Market Data’s Influence

Highlights

• The AUD/USD declined by 0.42% on Wednesday, ending the session at $0.67309.
• On Thursday, the focus will be on Asian region service sector PMIs.
• US labor market stats and Services PMI numbers also need consideration.

Wednesday Overview of the AUD/USD

The AUD/USD declined by 0.42% on Wednesday. Following a 0.75% slide on Tuesday, the Australian dollar ended the session at $0.67309. The Australian dollar rose to a high of $0.67707 before falling to a low of $0.67018.

Australian and Chinese Services PMIs in Focus

On Thursday, the China Caixin Services PMI will garner investor interest. An unexpected contraction across the services sector would impact buyer demand for the Aussie dollar. The services sector contributes over 50% to the Chinese economy. A contraction across the services sector would impact the overall Chinese economy and the demand environment.

Significantly, China accounts for one-third of Australian exports, with Australia’s trade-to-GDP ratio above 50%. A weak Chinese demand environment would impact the Australian economy, the workforce, and the Aussie dollar. 20% of the Australian workforce is in trade-related jobs.

Economists forecast the China Caixin Services PMI to remain at 51.5 in December.

Finalized Australia Services PMI numbers for December drew investor interest earlier in the session. The Services PMI increased from 46.0 to 47.1 versus a preliminary 47.6.

US Economic Calendar: ADP Nonfarm, Jobless Claims, and Services PMI

On Thursday, the US labor market will be in focus again. ADP employment change and initial jobless claims warrant investor attention. Tight labor market conditions could support wage growth and increase disposable income.

An upward trend in disposable income would fuel consumer spending and demand-driven inflationary pressure. The net effect could be a more hawkish Fed rate path to reduce disposable income and dampen demand-driven inflation.

Economists forecast initial jobless claims to fall from 218k to 216k in the week ending December 30. More importantly, economists predict the ADP will report a 115k increase in employment in December vs. 103k in November.

Other stats include finalized S&P Global Services PMI numbers. However, barring a revision from preliminary numbers, the survey should have a limited impact on the US dollar.

Short-Term Forecast

Near-term AUD/USD trends hinge on US labor market and ISM service sector data. Better-than-expected US labor market numbers could force the Fed to delay rate cuts. Barring a sizeable stimulus package from China, monetary policy divergence could tilt toward the US 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 move through the $0.67500 handle would bring the $0.68096 resistance level into play.

China Services PMI, US Labor Market stats, and Fed commentary will be in focus.

However, a break below the $0.67286 support level would give the bears a run at the 50-day EMA and the $0.66162 support level.

A 14-period Daily RSI reading of 54.38 indicates an AUD/USD move through the $0.68096 resistance level before entering overbought territory (typically above 70 on the RSI scale).

4-Hourly Chart

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

An AUD/USD move through the 50-day EMA would give the bulls a run at the $0.68096 resistance level.

However, a break below the $0.67286 support level would bring the 200-day EMA into play.

The 14-period 4-Hourly RSI at 37.57 suggests an AUD/USD fall through the $0.67 handle before entering oversold territory.