AUD to USD Forecast: RBA Interest Rate Decision Crucial Amid US Housing Market Focus

Monday Overview of the AUD/USD

The AUD/USD slipped by 0.01% on Monday. After a 0.32% loss on Friday, the Australian dollar ended the session at $0.65591. The Australian dollar rose to a high of $0.65739 before falling to a low of $0.65507.

RBA Interest Rate Decision and Press Conference in Focus

On Tuesday, the RBA interest rate decision and press conference warrant investor attention. Economists expect the RBA to leave the cash rate at 4.35%. Barring an unexpected RBA interest rate hike, the focus will be on the RBA Press Conference.

In February, RBA Governor Michele Bullock left a rate hike on the table.

Since the February 6 RBA Press Conference, retail sales and service sector data signaled an improving macroeconomic environment. In contrast, the unemployment rate climbed from 3.9% to 4.1%, signaling a possible pullback in wage growth. Softer wage growth could impact consumer spending and dampen demand-driven inflation, reducing the need to hike rates.

However, according to the Monthly CPI Indicator, the Australian annual inflation rate remained at 3.4%, suggesting sticky inflation.

A weaker labor market environment, iron ore price trends, and recent economic indicators from China deliver uncertainty about the RBA rate path. The uncertainty will give the RBA press conference more weightage. Investors must consider views on inflation and whether the RBA remains willing to hike rates.

US Economic Calendar: Housing Sector in the Spotlight

On Tuesday, the US housing sector will be in the spotlight again. Economists consider the US housing market a litmus test of the US economy.

Building permit and housing start trends reflect the demand for new homes. Increased demand supports upward trends in house prices and consumer confidence. A pickup in consumer confidence could fuel consumer spending and demand-driven inflation.

A higher-for-longer Fed rate path could influence borrowing costs and reduce disposable income. Downward trends in disposable income could curb consumer spending and dampen demand-driven inflation.

Economists forecast US building permits to decline by 0.2% in February after falling 0.3% in January. However, economists expect housing starts to jump 7% in February after tumbling 14.8% in January.

While the forecasts send mixed signals, an increase in housing starts could signal the need for more building permits. Housing start forecasts align with better-than-expected NAHB Housing Market Index numbers from Monday.

Notably, the NAHB Housing Market Index numbers further reduced bets on an H1 2024 Fed rate cut. According to the CME Fedwatch Tool, the probability of a 25-basis point June rate cut fell from 55.2% to 50.8% on Monday.

Short-Term Forecast

Near-term AUD/USD trends will hinge on RBA and Fed forward guidance. Falling bets on an H1 2024 Fed rate cut have pressured the AUD/USD. A hawkish RBA and Fed support for a June rate cut could signal an AUD/USD move to the $0.67 handle.

AUD/USD Price Action

Daily Chart

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

An Aussie dollar move through the 50-day EMA and $0.65760 resistance level would give the bulls a run at the 200-day EMA and the $0.66 handle.

The RBA press conference and US housing sector data warrant investor consideration.

Conversely, an AUD/USD drop below the $0.65500 handle could signal a fall to the $0.64582 support level.

Considering the RSI indicator, a 14-period Daily RSI reading of 48.58 indicates an AUD/USD drop to the $0.64582 support level before entering oversold territory.