AUD to USD Forecast: RBA Governor Michele Bullock and Interest Rates

Highlights

• The AUD/USD declined by 0.43% on Thursday, ending the session at $0.64916.
• RBA Governor Michele Bullock is under the spotlight on Friday.
• Later in the session, FOMC member commentary and forward guidance need consideration.

Thursday Overview of the AUD/USD

The AUD/USD declined by 0.43% on Thursday. Following a 0.05% loss on Wednesday, the Australian dollar ended the session at $0.64916. The Australian dollar rose to a high of $0.65319 before falling to a low of $0.64803.

RBA Governor Michele Bullock

On Friday, RBA Governor Michele Bullock is under the spotlight. The RBA Governor could face an intensive questioning session. Inflation, interest rates, homeowners, and the recent RBA forecasts are likely focal points. The AUD/USD will likely be sensitive to the questioning session.

The RBA Governor held the first RBA Press Conference on Tuesday, giving the media a hawkish spin on inflation and interest rates. Considering risks to inflation balanced, the Governor was non-committal on whether the next move would be a rate hike or a cut.

Moreover, the RBA Governor warned that inflation was far more detrimental to households than mortgage rates. The comments suggested the RBA will focus more on inflation-leading indicators and is willing to raise rates.

Hints of a pickup in demand-driven inflationary pressures could force the RBA to raise interest rates. Higher rates could impact borrowing costs and disposable income. Downward trends in disposable income could force consumers to curb spending, dampening demand-driven inflation.

It is worth considering that private consumption contributes over 50% to the Australian economy. A downward trend in private consumption could impact the economy and labor market.

US Economic Calendar: Fed Speakers in the Spotlight

On Friday, investors must monitor FOMC member speakers throughout the session. Hawkish forward guidance on interest rates could further reduce bets on a March Fed rate cut.

This week, FOMC members Loretta Mester, Neel Kashkari, Susan Collins, Adriana Kugler, and Thomas Barkin aligned with warnings from Fed Chair Powell about interest rate cuts. A common theme among FOMC members is the need for more confidence that inflation is sustainably moving toward the target before considering interest rate cuts.

A robust US labor market and resilient economy have enabled the Fed to take a more patient approach.

According to the CME FedWatch Tool, the chances of a March Fed rate cut fell from 38.0% to 18.5% this week. The shift in sentiment toward the March policy decision pressured the AUD/USD.

Short-Term Forecast for the AUD/USD

Short-term trends in AUD/USD remain hinged on the Chinese economy, inflation-linked economic indicators, and central bank speeches. Softer US inflation data may reignite speculation of a March Fed rate cut, potentially titling monetary policy toward the Aussie dollar. The US CPI Report is out on February 13.

AUD/USD Price Action

Daily Chart

The AUD/USD sat below the 50-day and 200-day EMAs, sending bearish price signals. Significantly, the 50-day EMA broke below the 200-day EMA, confirming the bearish price trend.

An AUD/USD break above the $0.64900 resistance level would support a move to the $0.65500 handle. A move through the $0.65500 handle would bring the EMAs into view.

Central bank speeches need consideration.

However, a break below the trend line would support a fall toward the $0.63854 support level.

A 14-period Daily RSI reading of 34.70 suggests an AUD/USD break below the trend line before entering oversold territory.

4-Hourly Chart

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

An AUD/USD break above the $0.64900 resistance level would support a move to the 50-day EMA. A breakout from the 50-day EMA would give the bulls a run at the 200-day EMA and the $0.66162 resistance level.

However, a fall through the trend line would bring the $0.63854 support level into play.

The 14-period 4-Hourly RSI at 38.78 suggests an AUD/USD fall to the trend line before entering oversold territory.