AUD to USD Forecast: China, US Consumer Sentiment, the Fed, and $0.67

The US Labor Market, China, and Monetary Policy Divergence

On Friday (May 10), overnight US jobless claims figures may continue to drive buyer demand for riskier assets and the AUD/USD. In contrast, Australian labor market conditions remain tight, with inflation trends impacting investor bets on a 2024 RBA rate cut.

Australian inflationary pressures linger despite lackluster household spending. Nevertheless, upcoming Australian economic indicators could materially alter sentiment toward the RBA rate path. Next week, wage growth figures (Wed) and labor market data (Thurs) will be the focal points.

However, before the labor market data, economic indicators from China may continue to move the dial.

Economists forecast vehicle sales to increase 13.0% in April year-on-year after rising 9.9% in March. Upbeat figures for April could drive buyer demand for the Aussie dollar. An improving Chinese economy would signal an improving demand environment, which may lead to better trade terms.

One-third of Australian exports make their way to China. Furthermore, Australia has a trade-to-GDP ratio above 50%, with 20% of the Australian workforce in trade-related jobs. Rising demand for Australian exports would be a boon for the Australian economy and the Aussie dollar.

US Economic Calendar: Consumer Sentiment and Fed Chatter

Later in the Friday session, Michigan Consumer Sentiment figures will warrant investor attention. Economists forecast the Michigan Consumer Sentiment Index to fall from 77.2 to 76.0 in May.

A weakening consumer confidence environment could signal a pullback in consumer spending. Downward trends in consumer spending would dampen demand-driven inflationary pressures, allowing for a more dovish Fed rate path.

However, investors should consider the sub-components, including the Michigan Inflation Expectations data. Economists expect the Michigan Inflation Expectations Index to ease from 3.2% to 3.1%.

Beyond the data, investors should continue monitoring FOMC member chatter. FOMC members Michelle Bowman, Austan Goolsbee, and Michael Barr are on the calendar to speak. Comments regarding inflation and interest rate cuts need consideration.

Short-Term Forecast

Near-term AUD/USD trends will hinge on data from China, US consumer confidence, and FOMC member chatter. A weaker-than-expected Michigan Consumer Sentiment Index could fuel investor expectations of a September Fed rate cut.

In contrast, investors must wait for Australian labor market data to recalibrate the RBA rate path. Nevertheless, upbeat data from China would drive buyer demand for the Aussie dollar.

AUD/USD Price Action

Daily Chart

The AUD/USD sat comfortably above the 50-day and 200-day EMAs, sending bullish price trends.

An Aussie dollar break above the $0.66500 handle would support a move to the $0.67003 resistance level. A return to $0.67 could give the bulls a run at the $0.67500 handle.

Vehicle sales figures from China, Michigan Consumer Sentiment numbers, and Fed speakers need consideration.

Conversely, an AUD/USD drop below the $0.65760 support level and 200-day EMA could give the bears a run at the 50-day EMA.

With a 14-period Daily RSI reading of 59.34, the AUD/USD may move to the $0.67003 resistance level before entering overbought territory.