AUD to USD Forecast: Impact of Building Permits on Aussie Inflation and RBA

The Housing Sector – Impact on AUD/USD and RBA Rate Path

Australian building permits may influence buyer demand for the AUD/USD and the RBA rate path.

Economists expect building permits to fall by 3.0% in June after a 5.5% surge in May.

Lower-than-expected building permits could reduce new home builds and tighten inventories. Tighter housing inventories may push home prices and rents higher. Higher rents may fuel housing services, headline consumer price inflation, and speculation about an RBA rate hike.

According to the ABS chart below, building approvals have fallen since March 2021, while immigration has increased since the COVID-19 pandemic.

RBA Discusses Housing Supply and Rents

In May, RBA Governor Michele Bullock discussed housing supply, immigration, and rents. Governor Bullock said that increasing immigration boosts housing demand and rents in a weak supply environment.

The housing sector data precedes crucial Australian inflation numbers (Wed), intensifying speculation about an August RBA rate hike.

Tighter housing inventories and higher consumer price inflation could support an AUD/USD move toward $0.70.

Later in the session on Tuesday, US consumer confidence and JOLTs Job Openings may influence the Fed rate path.

US Consumer Confidence

Economists forecast the CB Consumer Confidence Index to fall from 100.4 in June to 99.9 in July.

Weaker consumer confidence could curb consumer spending, dampening demand-driven inflation. A softer US inflation outlook could support a more dovish Fed rate path, impacting US dollar demand.

However, investors should consider the Expectations Index, which measures the outlook for income, business, and labor market conditions.

The Conference Board Chief Economist Dana M. Peterson commented on the June survey, stating,

“If material weaknesses in the labor market appear, confidence could weaken as the year progresses.”

Focus on US labor market data has also intensified as inflationary pressures soften.

US JOLTs Job Openings

Economists forecast JOLTs Job Openings to fall from 8.14 million in May to 8.05 million in June. A lower number could increase investor bets on multiple 2024 Fed rate cuts.

Weaker labor market conditions could affect wage growth and reduce disposable income. Downward trends in disposable income may impact consumer spending and demand-driven inflation.

What the Experts Say

Arch Capital Global Chief Economist Parker Ross commented on the last JOLTs Job Openings Report, stating,

“Although the May Job Openings and Labor Turnover Survey (JOLTS) showed slightly more job openings than expected (8.14m vs 7.95m consensus), the broader underlying downtrends remained in place. […]. The uptick in May merely kept the smoothed series from decelerating more quickly.”

Short-Term Forecast: Bullish

Near-term AUD/USD trends hinge on the Aussie inflation numbers and the Fed’s interest rate decision. Higher-than-expected Aussie inflation could raise bets on an RBA rate hike. Conversely, a more dovish Fed could signal multiple 2024 Fed rate cuts. Interest rate differentials could narrow in favor of the Aussie dollar and support an AUD/USD move toward $0.70.

Investors should remain vigilant, with Aussie and US economic indicators likely to create AUD/USD volatility. Monitor the real-time data, news updates, and expert commentary to adjust your trading strategies.

Stay updated with our latest views and analysis to manage exposures to the forex markets.

AUD/USD Price Action

Daily Chart

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

A break above the $0.65760 resistance level would support a move toward the 200-day EMA. A breakout from the 200-day EMA could give the bulls a run at the 50-day EMA.

Aussie building permits and the US economic calendar require consideration on Tuesday.

Conversely, an AUD/USD drop below the $0.65 handle could bring the $0.64582 support level into play.

With a 14-period Daily RSI reading of 30.19, the AUD could drop below the Monday low of $0.6524 before entering oversold territory.