AUD to USD Forecast: China’s New Year Reports Boosts Aussie Appetite

Friday Overview of the AUD/USD

The AUD/USD gained 0.06% on Friday. Following a 0.55% rise on Thursday, the Australian dollar ended the session at $0.65281. The Australian dollar fell to a low of $0.64964 before rising to a Friday high of $0.65447.

China and Chinese New Year Travel and Consumption in Focus

China will be a focal point on Monday as the markets reopen after the Chinese New Year holidays. Reports on Chinese New Year holiday travel and consumer spending were upbeat, signaling a boost to the Chinese economy.

An improving Chinese economy could influence the appetite for 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. Upward trends in exports to China would boost the economy and job creation. Significantly, an improving demand environment may influence the RBA rate path.

The Aussie dollar retook the $0.65 handle despite hotter-than-expected US producer prices on Friday.

In contrast to the Fed, the RBA left rate hikes on the table at the February 6 RBA press conference. The RBA meeting minutes are out on Tuesday and may give more color on the conditions needed for a rate hike. Hawkish minutes could drive buyer demand for the Aussie dollar as investors raise bets on a June Fed rate cut.

During the press conference, RBA Governor Michele Bullock affirmed that the RBA forecasts considered a weaker Chinese economy. A shift in momentum could change the narrative. Upward revisions to Australian employment, GDP, or inflation projections may lead to a more hawkish RBA interest rate trajectory.

US Economic Calendar: Fed Speakers

On Monday, investors must consider FOMC member commentary. Recent US inflation figures influenced investor bets on the timeline for a Fed rate cut. Significantly, the markets reduced bets on a Fed rate cut in March or May while raising bets on a June Fed rate cut.

According to the CME FedWatch Tool, the probability of a March Fed rate cut fell from 16.0 to 10.0% last week. The chances of a 25-basis point May Fed rate cut declined from 52.2% to 28.0%. However, the likelihood of a 25-basis point June rate cut increased from 41.9% to 55.3%.

Reactions to the inflation numbers and views on interest rate cuts could influence investor sentiment toward the Fed rate path.

There are no US economic data for investors to consider on Monday. The US markets are closed for George Washington’s birthday.

Short-Term Forecast

Short-term AUD/USD trends will remain hinged on Australian wage growth and inflation trends. A pickup in wage growth and sticky inflation could fuel expectations of an RBA interest rate hike. Rising bets on an RBA rate hike would tilt monetary policy divergence toward the Aussie dollar.

AUD/USD Price Action

Daily Chart

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

An Aussie dollar return to the $0.65500 handle would support a move to the 50-day and 200-day EMAs. A break above the EMAs would bring the $0.66162 resistance level into play.

On Monday, China and central bank commentary need consideration.

However, a break below the $0.64900 support level would give the bears a run at the trend line.

A 14-period Daily RSI reading of 46.16 suggests an AUD/USD drop to the trend line before entering oversold territory.

4-Hourly Chart

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

An AUD/USD move to the $0.65500 handle would give the bulls a run at the 200-day EMA.

However, a break below the 50-day EMA would support a fall to the $0.64900 support level. A drop below the $0.64900 support level would give the bears a run at the trend line.

The 14-period 4-Hourly RSI at 57.06 suggests an AUD/USD move to the $0.66162 resistance level before entering overbought territory.