AUD to USD Forecasts: Aussie and China PMIs in Focus Amid RBA Rate Speculations

Aussie Economic Calendar

On Monday, August 5, the finalized Judo Bank Services PMI influenced buyer demand for the AUD/USD.

The Judo Bank Services PMI fell from 51.2 in June to 50.4 in July, down from a flash PMI of 50.8.

According to the July survey, service sector activity increased at the slowest pace in six months.

A drop in employment may ease investor bets on an August RBA interest rate hike. Weaker labor market conditions could affect wage growth and disposable income, dampening consumer spending and demand-driven inflation. However, selling price inflation rose to an almost one-year high, sending an ominous message to the RBA.

Expert Views on the Services PMI and Inflation

Judo Bank  Economist Matthew De Pasquale commented on the survey, saying,

‘The Prices Charged index which should signal consumer inflation trends increased to the highest level since December 2023, likely reflecting businesses passing on a portion of input price increases to consumers in July. This does not suggest that we will see a material decrease in the inflation rate in the September quarter.”

China Services, Demand, and the Aussie Economy

China’s Caixin Services PMI will also require consideration.

Economists forecast the Caixin Services PMI to increase from 51.2 in June to 51.4 in July. Higher-than-expected numbers could ease fears of slower economic growth in Q3 2024, as it contributes between 50%-55% to the Chinese economy.

A pickup in service sector activity may signal an improving macroeconomic environment and rising demand. Higher demand could bolster the Australian economy and the Aussie dollar.

China accounts for one-third of Australian exports. Australia has a trade-to-GDP ratio of over 50%, with 20% of its workforce in trade-related jobs. An improving demand environment could support an AUD/USD move toward $0.67.

The AUD/USD tumbled from a July 15 high of $0.67985 to a July 31 low of $0.64794 in response to weaker-than-expected GDP numbers from China. The economy expanded by 4.7% in Q2 2024, down from 5.3% in Q1 2024.

US Economic Calendar: ISM Services PMI

Later in the Monday session, the US ISM Services PMI will be a crucial data release.

Economists expect the ISM Services PMI to rise from 48.8 in June to 51.0 in July. Hotter-than-expected numbers could dampen investor fears of a US hard landing. The services sector contributes about 80% to the US economy.

However, investors should consider the subcomponents, including employment and prices. Weaker labor market conditions could affect wages, disposable income, and consumer spending trends. Downward trends in consumer spending and prices would support multiple 2024 Fed rate cuts.

Expert Views on the Fed Rate Path

On Friday, Bloomberg Chief Markets Editor David Ingles said,

“Govt bonds as a group up 8 straight days, longest streak in 4 years. Growth outlook souring, rate cuts starting to come out of the kitchen. Swaps signal 3 Fed cuts now fully priced this year. Eerily enough, last time we had an 8-day streak was when pandemic lockdowns pummeled the global economy.”

Short-Term Forecast: Bearish

Near-term AUD/USD trends depend on the RBA interest rate decision (Tues) and the US Services PMI. A hawkish RBA and weaker US PMI numbers could support an AUD/USD move toward $0.67. However, PMI numbers from China also need consideration.

Investors should remain alert, as uncertainty about the global economy impacts demand for the AUD/USD. 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 remained well below the 50-day and the 200-day EMAs, affirming the bearish price signals.

A breakout from the $0.65500 handle could give the bulls a run at the $0.65760 resistance level. Furthermore, a break above the $0.65760 resistance level would bring the 200-day EMA into play.

Service sector PMIs require investor consideration on Monday.

Conversely, an AUD/USD fall through $0.65 could signal a drop toward the $0.64582 support level.

With a 14-period Daily RSI reading of 28.16, the Aussie dollar sits in oversold territory. Buying pressure may increase at the July 31 low of $0.64794.