AUD to USD Forecast: China Stimulus Plans and US Inflation in the Spotlight

Highlights

• The AUD/USD gained 0.11% on Thursday, ending the session at $0.65846.
• China stimulus plans countered expectations of a US soft landing.
• On Friday, US personal income/spending and inflation numbers will impact near-term AUD/USD trends.

Thursday Overview of the AUD/USD

The AUD/USD gained 0.11% on Thursday. Reversing a 0.03% loss from Wednesday, the Australian dollar ended the session at $0.65846. The Australian dollar rose to a high of $0.66098 before falling to a low of $0.65660.

China Stimulus and Iron Ore Demand

Stimulus measures from Beijing delivered the AUD/USD a Thursday session high of $0.66098.

On Wednesday, the PBoC announced plans to cut the Reserve Requirement Ratio (RRR) by 0.5 percentage points on February 5. Significantly, the PBoC also said further policy measures are on the horizon to boost bank lending to qualified developers.

An improving real estate market could drive demand for iron ore. China accounts for over 80% of Australian iron ore exports. Iron ore is one of Australia’s main export items. A pickup in demand would be a boon for the Australian economy and the Aussie dollar.

Australia has a trade-to-GDP ratio above 50%, with 20% of the workforce in trade-related jobs.

There are no economic indicators from Australia on Friday. The Australian markets are closed for Australia Day.

US Economic Calendar: Personal Income/Spending and Inflation

On Friday, US personal income/spending and inflation figures warrant investor attention. Significantly, economists forecast the Core PCE Price Index to increase by 3.0% in December. In November, the Core PCE Price Index rose by 3.2%.

Sticky inflation and upward personal income/spending trends could reduce bets on a March Fed rate cut.

Upward trends in personal income and spending could drive demand-driven inflation. A higher-for-longer Fed rate path could impact disposable income and curb consumer spending.

Despite better-than-expected private sector PMIs and US GDP numbers, bets on a March Fed rate cut linger. According to the CME FedWatch Tool, the probability of a 25-basis point March rate cut increased from 40.4% to 50.0% on Thursday.

Short-Term Forecast

Near-term AUD/USD trends remain hinged on US and Australian inflation figures. Sticky US inflation numbers and softer-than-expected Australian inflation could tilt monetary policy divergence toward the US dollar. Australian inflation numbers are out on January 31.

AUD/USD Price Action

Daily Chart

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

An AUD/USD move through the 200-day EMA would bring the $0.66162 resistance level and the 50-day EMA into play. A break above the 50-day EMA would support a move toward the $0.66500 handle.

On Friday, China and the US economic calendar warrant investor attention.

However, a break below the $0.65500 handle would support a fall toward the $0.64900 support level.

A 14-period Daily RSI reading of 40.22 suggests an AUD/USD drop below the $0.65 handle before entering oversold territory.

4-Hourly Chart

The AUD/USD sat below the 50-day and 200-day EMAs, confirming the bearish price trends.

An AUD/USD breakout from the 50-day EMA would give the bulls a run at the $0.66162 resistance level. A break above the $0.66162 resistance level would support a move to the 200-day EMA.

However, a fall through the $0.65500 handle would bring the $0.64900 support level into play.

The 14-period 4-Hourly RSI at 48.49 suggests an AUD/USD fall to the $0.64900 support level before entering oversold territory.