AUD/USD Daily Forecast: Interest Rate Differential and Chinese Stimulus in Spotlight

The RBA Meeting Minutes in Focus

The RBA Meeting Minutes will spotlight the AUD/USD pairing on Tuesday, August 20.

On August 6, the RBA kept the cash rate at 4.35%. Significantly, the RBA maintained its hawkish stance, with the Rate Statement highlighting concerns about elevated inflation.

RBA Governor Michele Bullock also fueled speculation about an RBA rate hike, warning that the RBA will not hesitate to raise interest rates if inflation does not cool.

The Meeting Minutes may provide more insights into the RBA’s willingness to hike interest rates at the expense of the Aussie labor market.

Interest rate differentials and the AUD/USD Trajectory

Another close call regarding hiking interest rates may indicate a possible narrowing of the interest rate differential between Australia and the US. The RBA’s next opportunity for a rate hike is on September 24, one week after the heavily anticipated FOMC interest rate decision.

A 25-basis point RBA rate hike and a 50-basis point Fed rate cut would narrow the interest rate differential from 115 bps to 40 bps. A 40 bp rate differential could push the AUD/USD through $0.70.

The People’s Bank of China and Loan Prime Rates

Meanwhile, the People’s Bank of China (PBoC) will set the one-year and five-year loan prime rates (LPR). Economists expect the PBoC to leave the one-year and five-year LPRs at 3.35% and 3.85%, respectively.

However, an unexpected cut in the LPRs could boost buyer demand for riskier assets and commodity currencies, such as the Aussie dollar. Lower LPRs could boost domestic demand, possibly bolstering the Chinese economy.

Significantly, an improving demand environment in China could benefit the Australian economy and the Aussie dollar. Australia has a trade-to-GDP ratio of over 50%, with one-third of its exports bound for China. Furthermore, 20% of the Australian workforce is in trade-related jobs, emphasizing the influence of the Chinese economy on the Aussie labor market.

Will China Roll Out a Fiscal Stimulus Package to Bolster the Ailing Economy?

On Monday, speculation about fresh stimulus measures from Beijing intensified following a report by China Daily. The article stated that economists from government-backed think tanks suggested possible cash handouts or vouchers for consumers and advancing government bond issuance plans.

Recent economic data from China has raised concerns that growth could slow further in Q3 2024. Slower growth would challenge Beijing’s 5% growth target for the year.

Stimulus measures from Beijing could fuel buyer demand for the Aussie dollar.

US Economic Calendar

Later in the session on Tuesday, investors should consider FOMC member comments as the Jackson Hole Symposium looms.

FOMC voting members Raphael Bostic and Michael Barr are on the calendar to speak. Their views on the economic outlook, the labor market, and the Fed rate path may influence US dollar demand.

The markets largely expect Fed Chair Powell to greenlight a September rate cut on Friday. However, there is uncertainty about the size of the rate cut.

According to the CME FedWatch Tool, the probability of a 25-basis point September rate cut was 77.0% on Monday, August 19, versus 23.0% for a 50-basis point cut.

Short-Term Forecast: Bullish

Near-term AUD/USD trends will depend on central bank forward guidance. Hawkish RBA Meeting Minutes and FOMC member support for multiple 2024 Fed rate cuts could drive the AUD/USD toward $0.70.

Investors should remain alert, with Fed and RBA 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 remained comfortably above the 50-day and 200-day EMAs, affirming bullish price signals.

A breakout from $0.67500 would support a move toward the $0.67967 resistance level. Furthermore, a break above the $0.67967 resistance level could bring the $0.68996 resistance level into play.

Investors should consider the RBA Meeting Minutes, PBoC moves, and Fed commentary.

Conversely, a break below the $0.67003 support level could signal a drop toward the top trend line.

With a 14-period Daily RSI reading of 65.80, the Aussie dollar could break above the $0.67500 handle before entering overbought territory.