AUD to USD Forecast: Inflation and China PMIs Impact the Aussie Dollar

Highlights

• The AUD/USD declined by 0.12% on Tuesday, ending the session at $0.66022.
• Australian retail sales, US consumer confidence, and US JOLTs job openings influenced AUD/USD price trends.
• On Wednesday, Q4 Australian inflation figures, China PMIs, and the US Federal Reserve are in focus.

Tuesday Overview of the AUD/USD

The AUD/USD declined by 0.12% on Tuesday. Partially reversing a 0.56% loss from Monday, the Australian dollar ended the session at $0.66022. The Australian dollar rose to a high of $0.66244 before falling to a low of $0.65750.

Aussie Inflation Puts the RBA Under the Spotlight

On Wednesday, Australian inflation numbers warranted investor attention early in the session. Sticky inflation numbers could fuel bets on an RBA rate hike on February 6.

However, the annual inflation rate eased from 5.4% to 4.1% in Q4. Economists forecast an inflation rate of 4.3%.

After weaker-than-expected Australian retail sales figures on Tuesday, the latest inflation numbers eased bets on an RBA rate hike.

Later in the Asian session, private sector PMI numbers from China garnered investor interest.

China NBS Private Sector PMIs Highlight Spluttering Chinese Economy

The NBS Non-Manufacturing PMI increased from 50.4 to 50.7 in January, with the Manufacturing PMI up from 49.0 to 49.2. Economists forecast PMIs of 50.5 and 49.2, respectively.

Private sector activity remained lackluster at the start of the year despite measures from Beijing to boost economic activity.

Investors responded to the Australian inflation and China PMI numbers. The AUD/USD slid from $0.65953 to $0.65719.

US Economic Calendar: ADP Employment and the Fed

Later in the session, ADP employment numbers for January will draw investor interest. A larger-than-forecast increase in employment could reduce bets on a March Fed rate cut. Economists expect the ADP to report a 145k increase in employment after rising by 164k in December.

Tight labor market conditions support wage growth and may increase disposable income. Upward trends in disposable income could fuel consumer spending and demand-driven inflation. A higher-for-longer Fed rate path could reduce disposable income and curb consumer spending.

Other stats include employment cost and Chicago PMI numbers. Wage growth figures could move the dial. Economists forecast Employment Cost – Wages to increase by 1.1% quarter-on-quarter in Q4 vs. 1.2% in Q3.

However, the Fed interest rate decision, rate statement, and press conference will impact the AUD/USD more. Economists predict the Fed will leave interest rates at 5.50%. Barring a surprise Fed policy move, investors must consider the rate statement and press conference.

The anticipated timing of the first Fed interest rate cut would be pivotal. Uncertainty about a March Fed rate cut remains following robust US economic indicators.

According to the CME FedWatch Tool, the probability of a March Fed rate cut fell from 46.2% to 40.4% on Tuesday.

Short-Term Forecast

Near-term AUD/USD trends remain on hinged the Fed rate statement and press conference. A more hawkish-than-expected Fed outlook on interest rates could tilt monetary policy divergence toward the US dollar. However, the US Jobs Report must send tight labor market signals to pressure the AUD/USD.

AUD/USD Price Action

Daily Chart

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

An AUD/USD break above the 200-day EMA would support a move to the $0.66162 resistance level and the 50-day EMA. Selling pressure could intensify at the $0.66162 resistance level. The 50-day EMA is confluent with the $0.66162 resistance level.

China, US labor market data, and the Fed warrant investor attention.

However, a drop below the $0.65500 handle would support a fall toward the $0.64900 support level.

A 14-period Daily RSI reading of 41.06 suggests an AUD/USD fall below the $0.65 handle before entering oversold territory.

4-Hourly Chart

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

An AUD/USD break above the 50-day EMA would support a move to the $0.66162 resistance level and the 200-day EMA.

However, a drop below the $0.65500 handle would bring the $0.64900 support level into play.

The 14-period 4-Hourly RSI at 43.82 indicates an AUD/USD drop below the $0.65500 handle before entering oversold territory.