AUD to USD Forecast: Tensions Rise Amid Anticipated Inflation Jump

Highlights

• AUD/USD declined by 0.41% on Tuesday, with the Aussie dollar peaking at $0.64305 before dropping to a low of $0.63874.
• Expected rise in Australian inflation from 4.90% to 5.20% may push RBA toward heightened rates.
• China’s industrial profits mirror the broader macroeconomic landscape; investors take heed.

Tuesday Overview

On Tuesday, the AUD/USD declined by 0.41%. Following a 0.25% loss on Monday, the Aussie dollar ended the day at $0.63967. The Aussie dollar rose to a high of $0.64305 before falling to a low of $0.63874.

Australian Inflation and China Industrial Profits in the Spotlight

Weighted mean consumer price inflation figures will be in focus this morning. The AUD/USD will be more sensitive to inflation figures due to expectations of prolonged higher Australian interest rates.

Economists predict a rise in Australian annual inflation from 4.90% to 5.20%, likely prompting the RBA to maintain higher interest rates. This results in elevated borrowing costs and diminished spending power, potentially curbing demand-driven inflation through reduced consumption.

Investors should consider China’s industrial profit numbers as they reflect the macroeconomic environment. China makes up one-third of Australian exports. Weaker demand from China would negatively affect the highly trade-dependent Australian economy, which has a trade-to-GDP ratio exceeding 50%.

A deteriorating macroeconomic environment, coupled with sustained high interest rates, could further strain the Australian economy.

Core Durable Goods a Pre-Cursor to Jobless Claims and Inflation

Durable and core durable goods orders are in focus later today. Weaker-than-forecast orders would give investors more reason to fret over the prospects of a hard landing.

Economists forecast core durable goods orders to increase 0.1% in August versus 0.5% in July. However, the numbers may not force the Fed to veer from its hawkish interest rate path.

Tight US labor market conditions fuel wage growth and consumer spending. An upward trend in consumer spending supports demand-driven inflationary pressures.

Higher rates would impact wage growth and spending power, forcing consumers to curb spending. A pullback in consumer demand would ease demand-driven inflation and take pressure off the Fed from maintaining a hawkish interest rate path.

Beyond the numbers, FOMC member commentary also needs consideration. Dovish commentary would offer relief from the higher-for-longer mantra plaguing the global markets.

Short-Term Forecast

A rise in Australian inflation would fuel speculation on a more hawkish RBA, but the macroeconomic environment will still pressure the Aussie dollar. A resilient US economy would enable the Fed to contemplate bolder policy actions.

AUD/USD Price Action

Daily Chart

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

An AUD/USD break below the $0.63854 support level would bring $0.6350 and the trend line into view. China and Australian economic indicators will influence risk sentiment and RBA policy bets.

However, an AUD/USD return to $0.64500 would support a move to the $0.64900 resistance level and the 50-day EMA. Selling pressure will build at $0.64900. The 50-day EMA is confluent with the $0.64900 resistance level.

An RSI reading of 41.13 supports an AUD/USD fall to $0.63500 before entering oversold territory (typically below 30 on the RSI scale).

4-Hourly Chart

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

A break below the $0.63854 support level would give the bears a run at the trend line.

However, an AUD/USD return to $0.64 would support a move to the 50-day EMA. A break above the 50-day EMA would bring the 200-day EMA into view.

The 14-period 4-Hourly RSI at 38.91 supports an Aussie dollar fall through the $0.63854 support level before entering oversold territory.