AUD to USD Weekly Forecast: RBA’s Tough Choices with CPI and Fed’s Influence

Weekly Overview of the AUD/USD in the Week Ending June 21, 2024

In the week ending on June 21, the AUD/USD gained 0.54% to close the week at $0.66395. The AUD/USD fell to a Monday low of $0.65851 before climbing to a Thursday high of $0.66792.

Australian CPI Monthly Indicator: A Crucial Data Release

On Tuesday, June 25, Australian consumer confidence figures for June could influence investor bets on a 2024 RBA rate hike.

Economists expect the Westpac Consumer Confidence Index to decline by 0.1% to 82.0. A larger-than-expected fall in consumer confidence could signal a pullback in consumer spending. Downward trends in consumer spending may dampen demand-driven inflation and ease pressure on the RBA to hike interest rates.

Nevertheless, the crucial Australian CPI Monthly Indicator could pressure the RBA into an August interest rate hike.

Economists forecast the annual inflation rate to rise from 3.6% to 3.8% in May, moving further from the target range of 2-3%.

RBA Governor Michele Bullock advised the markets that RBA Board members discussed the merits of a rate hike in June. The rate hike discussions highlighted a willingness to tame inflation at all costs. The June RBA Rate Statement also revealed growing concern among Board members about inflation, stating,

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”

This June Statement differed from the May RBA Rate Statement, which stated,

“The Board remains resolute in its determination to return inflation to target.”

With inflation the focal point, consumer inflation expectation figures for June will garner investor interest on Thursday, June 27.

Economists predict consumer inflation expectations to advance from 4.1% to 4.3%, another challenge for the RBA.

On Friday, private sector credit numbers for May could reflect the effects of elevated interest rates and inflation on borrowing appetite.

Private Sector Credit Could Signal Waning Demand

A lower-than-expected rise in private sector credit could signal a sharp pullback in private consumption. Downward trends in private consumption may dampen demand-driven inflationary pressures and the need for a hawkish RBA rate path.

Economists forecast private sector credit to rise by 0.4% in May after increasing by 0.5% in April.

While investors speculate about the possibility of an RBA rate hike, US economic data could cement a September Fed rate cut.

US Consumer Confidence and Personal Income and Outlays Report Pivotal for the Fed

US consumer confidence will draw attention to the US dollar on Tuesday. Economists forecast the CB Consumer Confidence Index to fall from 102.0 to 100.0 in June.

A larger-than-expected fall in consumer confidence could signal a pullback in consumer spending. Downward trends in consumer spending could dampen demand-driven inflation and raise investor bets on a September Fed rate cut.

Significantly, a slide below 100 may also spark speculation about a hard US landing. Private consumption accounted for 67.6% of the US Nominal GDP in March 2024.

The CB Consumer Confidence Index dropped briefly below 100 in April (97.0) and for the first time since July 2022.

Chief Economist at the Conference Board, Dana M. Peterson, attributed the April fall to inflation, saying,

“According to April’s write-in responses, elevated price levels, especially for food and gas, dominated consumer’s concerns, with politics and global conflicts as distant runners-up.”

On Friday, the US Personal Income and Outlays Report could prove pivotal to the US dollar.

Economists expect the crucially important Core PCE Price Index to increase 2.7% year-on-year in May after rising 2.8% in April. Softer-than-expected numbers could cement investor expectations of a September Fed rate cut.

However, investors should consider personal income and spending trends. Economists expect personal income and spending to increase by 0.4% and 0.3% in May, respectively. A pickup in US personal income/spending may signal a sticky inflation environment and support a higher-for-longer Fed rate path.

On Tuesday, June 18, FOMC Member Susan Collins warned against overbetting on a Fed rate cut, suggesting a divided FOMC on progress toward bringing inflation to target.

Will Fed Speakers continue to play down a September Fed rate cut?

Other stats in the week include Q1 2024 GDP numbers, jobless claims, housing sector data, and finalized Michigan Consumer Sentiment numbers. However, the CB Consumer Confidence Survey and the Personal Income and Outlays Report will likely influence the Fed rate path more.

Considering the significance of the CB Consumer Confidence Survey and the inflation numbers, investors should monitor FOMC member speeches.

FOMC Members Christopher Waller (Mon), Mary Daly (Mon), Michelle Bowman (Tues/Wed/Thurs), Lisa Cook (Tues), Thomas Barkin (Thurs), and John Williams (Fri) are on the calendar to speak.

More decisive views on the timing of a Fed rate cut could move the dial.

Short-Term Forecast:

The near-term trend for the AUD/USD will hinge on the Australian Monthly CPI Indicator and the US Personal Income and Outlays Report. Higher Australian inflation numbers and softer US inflation could encourage speculation about an RBA rate hike and a Fed rate cut. The AUD/USD could target $0.68 in a monetary policy tilt toward the Aussie dollar.

AUD/USD Price Action

Daily Chart

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

An Aussie dollar breakout from the $0.66500 handle would support a move to the $0.67003 resistance level. Moreover, a break above the $0.67003 resistance level could signal a return to the $0.67500 handle.

Australian inflation numbers, the US Personal Income and Outlays Report, and central bank chatter require investor attention.

Conversely, an AUD/USD drop below the 50-day EMA could bring the 200-day EMA and the $0.65760 support level into play. A drop below the $0.65760 support level may signal a fall to the $0.64582 support level.

With a 14-period Daily RSI reading of 51.39, the AUD/USD could return to the $0.67500 handle before entering overbought territory.