AUD to USD Forecast: China’s Industrial Profits to Drive Aussie Dollar Momentum

Market Risk, Commodity Prices, and Industrial Profits

On Monday (May 27), commodity price trends and market risk sentiment will influence buyer demand for the AUD/USD.

While iron ore spot gained 0.28% on Friday (May 24), iron ore futures were down 0.14% early in the Monday session.

Later in the morning session, industrial profit figures from China will warrant investor attention.

Economists forecast industrial profits to increase 3.5% year-to-date (year-on-year) compared with 4.3% in March. Weaker-than-expected numbers may raise concerns over the demand environment.

In the recent China Caixin Manufacturing PMI survey, manufacturers reported that input prices increased at the most marked rate since October 2023. However, firms did not raise factory gate prices at the same rate due to stern competition. Input and output price trends suggested narrower profit margins despite new orders increasing at the fastest pace in over 12 months.

Industrial profit figures from China could influence demand trends. Increasing demand from China could boost the Australian economy, labor market, and the Aussie dollar.

China accounts for one-third of Australian exports. Australia has a trade-to-GDP ratio above 50%, with 20% of the workforce in trade-related jobs.

US Economic Calendar: Memorial Day and the Fed

Investors should monitor for FOMC member commentary later in the session.

Views on inflation, the economic outlook, and the timing of a Fed rate cut need consideration.

The FOMC Meeting Minutes and recent US labor market and service sector data impacted investor bets on a September Fed rate cut. However, the University of Michigan Survey of Consumers provided some relief. Consumer inflation expectations for the 12 months ahead increased from 3.2% to 3.3%, down from a preliminary 3.5%.

The effects of the Minutes and the stats were evident in sentiment toward Fed monetary policy. According to the CME FedWatch Tool, the probability of the Fed standing pat in September increased from 35.2% to 50.2% in the week ending May 24.

On Monday, there are no stats from the US because of the Memorial Day holidays.

Short-Term Forecast

Near-term AUD/USD trends could hinge on Aussie retail sales and inflation numbers before the US Personal Income and Outlays Report. Hotter-than-expected Aussie inflation could refuel speculation about an RBA rate hike and tilt monetary policy divergence toward the Aussie dollar.

AUD/USD Price Action

Daily Chart

The AUD/USD hovered above the 50-day and 200-day EMAs, affirming the bullish price signals.

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

Industrial profit numbers from China and FOMC member commentary need consideration.

Conversely, an AUD/USD break below the 50-day EMA, the $0.65760 support level, and the 200-day EMA could give the bears a run at the $0.64582 support level. Buying pressure may intensify at the $0.65760 support level. The EMAs are confluent with the support level.

With a 14-period Daily RSI reading of 53.53, the AUD/USD could climb to the $0.67003 resistance level before entering overbought territory.