AUD to USD Forecast: China’s Clues to Shape Australian Dollar’s Fate

Highlights

• Aussie trade terms and job market are susceptible to deepening economic turbulence in China.
• Hawkish RBA minutes could signal the potential for future rate hikes, with wage growth in focus.
• AUD/USD charts highlight bearish tendencies, with crucial resistance at $0.6526 – $0.6545.

On Monday, the AUD/USD fell by 0.10% to end the day at $0.64868. Risk aversion stemming from China’s deteriorating macroeconomic environment sent the Aussie dollar south.

The August RBA meeting minutes and Australian wage growth numbers will influence this morning.

RBA Governor Philip Lowe left the door open to more rate hikes on Friday. Hawkish minutes would provide price support. However, wage growth figures for Q2 will need to match forecasts or better to support hawkish RBA bets and the Aussie Dollar. Economists forecast wages to increase by 1.0% in Q2 versus 0.8% in the first quarter.

Wage growth fuels demand-driven consumer price inflation and is a focal point of the RBA. Higher interest rates would force companies to reduce employment levels leading to falling wages and reduced purchasing power. Higher unemployment also curbs consumption. Expect sensitivity to the wage growth figures.

Later in the morning session, economic indicators from China need to beat forecasts to avoid a risk-off-fueled sell-off. Fixed asset investment, industrial production, retail sales, and unemployment rate numbers are out. However, we expect the retail sales and industrial production figures to have more impact.

The Australian trade – GDP ratio stood at 45.8% in 2019 before declining as global trade terms deteriorated. As an exporter of commodities, weak global demand would adversely affect the Australian trade balance, the economy, and the Aussie dollar. Importantly, trade provides circa 20% of Australian jobs, a material consideration for the RBA. Weak economic indicators from China would signal deteriorating trade terms.

The US Session

US retail sales and the NY Empire State Manufacturing Index will move the dial. We expect the retail sales figures to have more impact.

Economists forecast retail sales to increase by 0.4% in July versus +0.2% in June.

A jump in retail sales could force the Fed to hike rates to curb spending and eliminate the demand effect on consumer price inflation.

However, with the manufacturing sector accounting for less than 30% of the US economy, the NY State numbers are unlikely to influence the Fed.

AUD/USD Price Action

Daily Chart

The Daily Chart showed the AUD/USD hover below the $0.6526 – $0.6545 resistance band. Significantly, the Aussie remained below the 50-day ($0.66521) and 200-day ($0.67274) EMAs, sending bearish near and longer-term price signals.

Looking at the 14-Daily RSI, 34.04 reflects a bearish sentiment and supports a fall to the $0.6450 – $0.6430 support band. However, an AUD/USD move through the $0.6526 – $0.6545 resistance band would give the bulls a run at the lower level of the $0.6600 – $0.6620 resistance band.

4-Hourly Chart

Looking at the 4-Hourly Chart, the AUD/USD hovers below the $0.6526 – $0.6545 resistance band. Significantly, the AUD/USD remains below the 50-day ($0.65451) and 200-day ($0.66438) EMAs, sending bearish near and longer-term price signals.

Looking at the 14-4-Houly RSI, the 41.68 reflects a bearish trend and supports a fall to the upper level of the $0.6450 – $0.6430 support band. However, an AUD/USD move through the $0.6526 – $0.6545 resistance band would give the bulls a run at the 50-day EMA ($0.65451).