AUD to USD Forecast: Producer Prices and US Jobs Report to Impact Market Sentiment

Aussie Economic Calendar

On Friday, August 2, Australian producer prices may influence buyer appetite for the AUD/USD.

Economists forecast producer prices to increase 4.5% year-on-year in Q2 2024, following a rise of 4.3% in Q1 2024.

Higher-than-expected numbers may reignite investor speculation about a possible RBA rate hike. Producer prices are leading indicators for consumer prices. Producers increase prices in a rising demand environment, passing costs onto consumers.

A more hawkish RBA rate path would raise borrowing costs, reducing disposable income. Lower disposable income could curb consumer spending and dampen demand-driven inflation.

Inflation and the RBA Rate Path

In June, RBA Governor Michele Bullock stated that Board members discussed raising interest rates. The Australian Monthly CPI Indicator increased from 3.6% in April to 4.0% in May.

However, softer inflation numbers for June eased investor bets on an August RBA rate hike. The Monthly CPI Indicator fell from 4.0% in May to 3.8% in June.

Nevertheless, the ABS released the May and June Monthly CPI Indicators after the RBA’s June interest rate decision, leaving uncertainty about the RBA rate path.

Higher producer prices could signal a sticky inflation environment, potentially forcing the RBA to raise interest rates. Rising bets on an RBA rate hike could support an AUD/USD move toward $0.67.

Expert Commentary

AMP Chief Economist Shane Oliver commented on Aussie inflation trends, stating,

“The pause in the fall in Aust inflation is not that different to what has been seen in other countries eg Canada and US…both of which then saw the fall resume. Note also that Aust inflation lagged on the way up and so is just doing the same on the way down.”

The RBA’s views on inflation will be crucial before the August 6 interest rate decision and press conference.

US Economic Calendar: The US Jobs Report

Economists forecast average hourly earnings to rise 3.7% year-on-year in July after an increase of 3.9% in June. Softer-than-expected wage growth and an unexpected rise in the US unemployment rate from 4.1% could fuel investor expectations of September and December rate cuts.

Softer wage growth could reduce disposable income, dampening consumer spending and demand-driven inflation. Furthermore, a deteriorating labor market could also impact wage growth.

The Fed and the US Jobs Report

On Wednesday, July 31, Fed Chair Powell emphasized the significance of the US labor market, saying that he did not want labor market conditions to worsen.

Weaker-than-expected labor market data may cement bets on multiple 2024 Fed rate hikes and push the AUD/USD toward $0.70.

Short-Term Forecast: Bearish

Near-term AUD/USD trends hinge on Australian producer prices and the US Jobs Report. Higher-than-expected producer prices and a disappointing US Jobs Report could tilt monetary policy divergence toward the Aussie dollar. Moreover, Fed and RBA rate path divergences could support an AUD/USD move toward $0.70

Investors should remain vigilant, with stats from Australia and the US 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 sat well below the 50-day and the 200-day EMAs, sending bearish price signals.

A return to the $0.65500 handle would support a move to the $0.65760 resistance level. Furthermore, a break above the $0.65760 resistance level could give the bulls a run at the 200-day EMA.

Aussie producer prices and US labor market data require consideration on Friday.

Conversely, an AUD/USD drop below the July 31 low of $0.64794 could give the bears a run at the $0.64582 support level.

With a 14-period Daily RSI reading of 25.68, the Aussie dollar sits in oversold territory. Buying pressure could intensify at the July 31 low of $0.64794.