AUD to USD Weekly Forecast: China PMIs and Aussie Inflation Key for the RBA

Weekly Overview

In the week ending July 26, the AUD/USD tumbled 2.08%, closing at $0.65454. The AUD/USD climbed to a Monday high of $0.67021 before falling to a Thursday low of $0.65132.

Can the Aussie dollar rebound from the China-induced losses?

Key economic indicators, including Aussie inflation and private sector PMIs from China, will be crucial for the AUD/USD.

Aussie Housing Sector Impact

Australian housing sector data may influence buyer appetite for the AUD/USD on Tuesday, July 30.

Economists expect building permits to increase by 0.3% in June after a 5.5% jump in May.

Higher permits could signal tighter inventories, increasing house prices and rents. Rising rents would fuel housing services and headline consumer price inflation, supporting a more hawkish RBA rate path.

According to the RBA, rents account for about 6% of the Consumer Price Index, the second largest expenditure class.

Aussie Inflation and the RBA Rate Path

On Wednesday, the Australian Monthly CPI Indicator and quarterly inflation numbers for Q2 will impact Aussie dollar demand.

Economists forecast the Monthly CPI Indicator to increase from 4% in May to 4.2% in June.

Higher inflation could force the RBA to raise interest rates to tame inflation. Higher rates reduce disposable income, curbing consumer spending and demand-driven inflation.

In June, the RBA discussed raising interest rates to tackle inflation. The RBA monetary policy meeting happened before the latest Monthly CPI Indicator, which jumped from 3.6% in April to 4.0% in May.

Rising bets on an August RBA rate hike could support an AUD/USD return to $0.66500.

Trade Terms Impact

Australian trade data will influence buyer appetite for the Aussie dollar on Thursday, August 1.

Economists forecast the trade surplus to widen from A$5.773 billion in May to A$7.300 billion in June.

Higher imports and exports could signal an improving demand environment as Australia has a trade-to-GDP ratio of over 50%. Rising exports and a wider trade surplus could support an AUD/USD move toward $0.66500.

Producer Prices: Leading Indicator of Consumer Prices

On Friday, August 2, Australian producer prices will also require consideration as a leading indicator of consumer prices.

Economists predict producer prices will increase 4.4% year-on-year in Q2 after a 4.3% rise year-on-year in Q1.

Higher producer prices could signal a rising demand environment. Producers raise prices in response to increasing demand, passing costs onto consumers.

Expert Views on the RBA Rate Path

Last week, StoneX Market Analyst David Scutt (Scutty) commented on the Australian private sector PMI numbers, saying,

“Latest S&P Global Australia PMI reads like a textbook explaining stagflation. Inflation pickup fits with recent upside surprises in official readings. Reckon we see another one next week, and a RBA hike in August.”

Bloomberg TV APAC Chief Markets Editor David Ingles commented on May’s Monthly CPI Indicator, stating,

“After a third hotter-than-expected Australia inflation report (note this is the monthly report not the broader quarterly data set), cash rate futures and also swaps are currently attaching a near 50-50 probability of an RBA rate HIKE in September.”

In contrast, Luci Ellis, Chief Economist at Westpac, projected a November RBA interest rate cut.

Meanwhile, private sector data from China will influence buyer demand for commodity currencies, including the Aussie dollar.

China Economic Indicators: Will Private Sector PMIs Force Beijing to Roll Out Stimulus

On Wednesday, July 31, NBS private sector PMIs for July will garner investor interest.

Economists forecast the NBS Manufacturing PMI to fall from 49.5 in June to 49.2 in July. Furthermore, economists expect the NBS Non-Manufacturing PMI to drop from 50.5 in June to 50.1 in July.

Lower manufacturing and services PMIs may signal a weakening demand environment, impacting the Australian economy, labor market, and private consumption.

China accounts for one-third of Australian exports, with 20% of the Australian workforce in trade-related jobs.

The all-important Caixin Manufacturing PMI will also require consideration on Thursday, August 1.

Economists predict the Caixin Manufacturing PMI to fall from 51.8 in June to 51.5 in July. A drop below 50 could spook the markets and reduce AUD/USD demand.

However, weak PMI numbers could fuel speculation about more stimulus measures from Beijing to boost the Chinese economy.

Economist Views on China and Stimulus Measures

The Communist Party’s Third Plenum disappointed economists in July.

Nataxis Asia Pacific Chief Economist Alicia Garcia Herrero commented on the readout and press conference, stating,

“Waiting for the details on the actual reforms that China’s leadership commits to implementing from this Third Plenum, the first impression is that the above measures will probably not be enough to solve China’s economic woes.”

Inflation numbers from Australia and PMI figures from China are crucial for the Aussie dollar. However, US economic data will also influence AUD/USD trends.

US Economic Data: Consumer Confidence

Economists forecast that on Wednesday, the CB Consumer Confidence Index will fall from 100.4 in June to 99.9 in July.

Lower consumer confidence may signal a fall in consumer spending. Downward trends in consumer spending could dampen demand-driven inflation, supporting a more dovish Fed rate path.

However, investors should also consider US labor market data throughout the week.

The US Labor Market and the Fed Rate Path

JOLTs Job Openings, ADP Nonfarm Employment, Jobless claims, and the US Jobs Report may fuel speculation about multiple 2024 Fed rate cuts.

On Friday, the US Jobs Report could significantly impact US dollar demand and the Fed rate path.

Economists forecast average hourly earnings to increase 3.9% year-on-year in July after rising 3.9% in June.

Furthermore, economists predict the US unemployment rate will remain at 4.1% in July.

Softer labor market conditions could affect wage growth further, reducing disposable income. Falling disposable income may curb consumer spending, dampening demand-driven inflation.

Beyond the numbers, the Fed will be in the spotlight on Wednesday.

Could the Fed Surprise the Markets by Cutting Interest Rates

Economists expect the Fed to leave interest rates at 5.5% on Wednesday. The CME FedWatch Tool gives a 6.7% probability for a 25-basis point Fed rate cut.

A surprise July Fed rate cut could signal three 25-basis point interest rate cuts in 2024, impacting US dollar demand.

Three Fed rate cuts and an RBA rate hike would narrow interest rate differentials firmly tilted toward the US dollar, suggesting an AUD/USD return to $0.70.

What Economists Say About a July Fed Rate Cut?

Wall Street Journal Chief Economics Correspondent Nick Timiraos shared comments from Goldman’s Jan Hatzius, stating,

“He writes: ‘While September remains our baseline, we see a solid rationale for already cutting in July. If the case for a cut is clear, why wait another seven weeks before delivering it?”

However, the Fed recently downplayed a July Fed rate cut. NY Fed President John Williams and Fed Governor Christopher Waller signaled a September rate cut before the FOMC Blackout Period.

Short-Term Forecast:

The near-term trends for the AUD/USD depend on Aussie inflation, US labor market data, and the Fed interest rate decision. Hotter-than-expected Aussie inflation may raise bets on an August RBA rate hike.

Moreover, softer US labor market data and a surprise Fed rate cut would narrow interest rate differentials, supporting an AUD/USD return to $0.70.

Investors should remain vigilant. The Fed interest rate decision, and economic data from Australia, China, and the US will be crucial for the AUD/USD pairing. Stay informed with our latest updates and insights to navigate the Forex markets effectively.

AUD/USD Price Action

Daily Chart

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

An Aussie dollar break above the $0.65760 resistance level would support a move toward the 200-day EMA. An AUD/USD breakout from the 200-day EMA could give the bulls a run at the 50-day EMA and the top trend line.

The Fed interest rate decision, and economic data from Australia, China, and the US require consideration.

Conversely, an AUD/USD drop below the $0.65000 handle could bring the 0.64582 support level into play. A fall through the $0.64582 support level may indicate a fall toward the bottom trend line.

With a 14-period Daily RSI reading of 47.14, the AUD/USD could drop below $0.65000 before entering oversold territory.