AUD/USD Daily Forecast: Aussie Inflation Could Cool RBA Rate Hike Bets

Will Aussie Inflation Numbers Cool RBA Rate Hike Bets?

On Wednesday, August 28, Australian inflation figures will put the AUD/USD pair under the spotlight.

Economists predict the inflation rate will fall from 3.8% in June to 3.4% in July.

A larger-than-expected decline would bring the inflation rate closer to the RBA target (2-3%), possibly easing speculation about an RBA rate hike.

RBA Governor Michele Bullock recently warned that the RBA would not hesitate to raise interest rates if inflation does not cool. An inflation rate below 3.4% might be enough for the RBA to shift from its hawkish stance.

Falling bets on a Q4 2024 RBA rate hike could initially push the AUD/USD pair down toward $0.67500. Nevertheless, the outlook remains bullish for the AUD/USD pair, with expectations of a narrowing interest rate differential likely to drive the pair toward $0.70.

Will the Interest Rate Differential Swing in Favor of the Aussie Dollar?

If the RBA holds the cash rate at 4.35% through Q4 2024, the interest rate differential may narrow sharply.

Investors expect the Fed to cut interest rates in September, November, and December, possibly dropping the Fed Funds Rate from 5.50% to 4.50%.

Expert Views on the RBA Rate Path

Judo Bank Chief Economic Advisor Warren Hogan recently remarked on the August PMI Survey and the RBA rate path, stating,

“There is nothing in these results that allows us to reduce the probability that the RBA may still have to raise the cash rate further before a concerted easing cycle can begin.”

AMP Head of Investment Strategy and Chief Economist Shane Oliver recently commented on the Aussie Labor Report, stating,

“Aust unemp now at its highest since Nov 2021. With the rise in unemp due to rising in labour supply, it’s not as bad as a rise in unemp on the back of job losses. So, it won’t rush the RBA into rate cuts. But it’s still a cooling in the labour mkt & we see the first cut in Feb 2025.”

US Economic Calendar

Later in the session on Wednesday, investors should monitor FOMC member speeches. FOMC voting members Christopher Waller and Raphael Bostic are on the calendar to speak.

Views on the labor market and the Fed rate path will be crucial, especially as speculation about a 50-basis point September rate cut has cooled.

Support for a 50-basis point rate cut could signal an interest rate differential of 15 bps between Australia and the US, possibly driving the AUD/USD through $0.70.

Expert Views on the US Labor Market and Economy

On Friday, Arch Capital Chief Global Economist Parker Ross considered the US labor market and Fed rate path, stating,

“The Fed has never started a mid-cycle adjustment with the unemployment rate already on the upswing y/y… But I hear there are too many rate cuts priced in!”

Ross elaborated on his Friday remarks, saying,

“This is why I emphasized on Friday that we’ve never been this far into the deterioration of the labor market prior to Fed rate cuts. The Fed is putting a lot of faith in its ability to turn the economy around, despite little historical evidence that it has such an ability.”

Short-Term Forecast: Bullish

Near-term AUD/USD trends will hinge on the Aussie inflation figures, US jobless claims (Thurs), and the US Personal Income and Outlays Report (Fri).

Softer-than-expected Australian inflation could reduce bets on an RBA rate hike. However, a spike in US jobless claims, a fall in personal spending, and softer US inflation could fuel bets on a 50-basis point Fed rate hike, possibly driving the AUD/USD toward $0.70.

Investors should remain alert to economic data and central bank commentary influencing AUD/USD price trends. 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 sat comfortably above the 50-day and 200-day EMAs, affirming the bullish price trend.

A breakout from the $0.67967 resistance level could give the bulls a run at the $0.68500. Furthermore, a return to $0.68500 may signal a move toward the $0.68996 resistance level.

Investors should consider the Aussie inflation numbers and central bank comments.

Conversely, a fall through $0.67500 could signal a drop toward the $0.67003 support level. A break below the $0.67003 support level may give the bears a run at the 50-day EMA and the top trend line. Buying pressure could increase at the top trend line. The 50-day EMA is confluent with the top trend line.

With a 14-period Daily RSI reading of 66.35, the Aussie dollar may move above the $0.67967 resistance before entering overbought territory.