AUD to USD Forecast: FOMC and Aussie CPI – What’s Next for the Australian Dollar?

Australian Monthly Inflation Indicator and the RBA

On Wednesday (May 29), the Australian Monthly Inflation Indicator will impact the buyer demand for the AUD/USD.

Economists forecast the Monthly CPI Indicator to fall from 3.5% to 3.4% in April.

Hotter-than-expected inflation numbers could refuel investor expectations of an RBA interest rate hike.

In the recent RBA press conference, RBA Governor Michele Bullock discussed the importance of taming inflation. Significantly, the RBA Governor warned that the Board would prioritize tackling inflation over easing pressures on households.

An interest rate hike would raise borrowing costs and reduce disposable income. Downward disposable income trends could impact consumer spending further, dampening demand-driven inflation.

Higher borrowing costs could also force businesses to cut staffing levels to reduce costs. A deteriorating labor market could affect wage growth, disposable income, and consumer confidence.

US Economic Calendar: FOMC Member Commentary

Later in the session, investors should monitor FOMC member commentary. Recent US economic data have reduced investor bets on a September Fed rate cut.

According to the CME FedWatch Tool, the chances of the Fed standing pat in September increased from 35.2% to 50.2% in the week ending May 24. Moreover, the probability of the Fed leaving interest rates unchanged increased to 53.7% on Tuesday.

Fed views on inflation, the economic outlook, and the likely next Fed policy move need consideration.

It could be a pivotal week for the US dollar. On Friday (May 31), the Personal Income and Outlays Report could influence the Fed rate path. Upward trends in personal income/spending and sticky inflation may fuel speculation of a 2024 Fed rate hike.

Short-Term Forecast

Near-term AUD/USD trends could hinge on inflation numbers from Australia and the US. Higher-than-expected US inflation numbers may swing monetary policy divergence toward the US dollar.

AUD/USD Price Action

Daily Chart

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

An Aussie breakout from the $0.66500 handle could give the bulls a run at the $0.67003 resistance level. A break above the $0.67003 resistance level could signal a move toward the $0.67500 handle.

Aussie inflation numbers and Fed speeches need consideration.

Conversely, an AUD/USD drop below the $0.66000 handle could give the bears a run at the 50-day EMA. A fall through the 50-day EMA may signal a break below the 200-day EMA and the $0.65760 support level. Furthermore, buying pressure could increase at the $0.65760 support level. The 200-day EMA is confluent with the support level.

With a 14-period Daily RSI reading of 56.46, the AUD/USD may return to the $0.67500 handle before entering overbought territory.