AUD/USD Daily Forecast: Rate Path Divergence and a Move Toward $0.70

The AUD/USD advanced by 0.21% on Thursday, August 15, closing at $0.66102. Australian labor market data left the RBA on watch as it eyes inflation trends.

Aussie Labor Market

The Australian unemployment rate increased from 4.1% in June to 4.2% in July. An unexpected increase in the participation rate drove the unemployment rate higher. The participation rate climbed from 66.9% in June to a record high of 67.1% in July.

While more people are looking for jobs, the employment figures indicate that hiring continued steadily.

Tight labor market conditions may support wage growth, increasing disposable income, and consumer spending. Higher consumer spending trends could fuel demand-driven inflation. Notably, wage growth figures for Q2 2024 aligned with the upward trend in the participation rate and employment

Australian wages increase by 4.1% year-on-year in Q2 2024, after rising by 4.1% in Q1 2024. The steady wage growth and higher employment suggest that the RBA may deliver on its threat of hiking rates.

The RBA Threat

Last week, RBA Governor Michele Bullock warned that the RBA would raise interest rates if inflation didn’t soften. The warning came after the RBA held the cash rate at 4.35% in August. The RBA has maintained its hawkish stance since the June interest rate decision, where board members discussed raising interest rates.

With tight labor market conditions and elevated inflation, an RBA rate hike remains on the table. An RBA rate hike would narrow the interest rate differential between Australia and the US, possibly pushing the AUD/USD toward $0.70.

Expert Views on the Labor Market and the RBA Rate Path

ABS Head of Labor Statistics Kate Lamb, on Thursday, remarked on the Aussie labor market data, stating,

“Although the unemployment rate increased by 0.1 percentage point in each of the past two months, the record high participation rate and near record high employment-to-population ratio shows that there continues to be a high number of people in jobs, and looking for and finding jobs.”

Robust labor market conditions will draw the RBA’s interest as tight labor market conditions could fuel wage growth and demand-driven inflation.

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

On Friday, August 16, housing sector data and the Michigan Consumer Sentiment survey could influence the interest rate differential between the US and Australia.

US Housing Starts and Building Permits

Economists expect housing starts to fall by 2% in July after an increase of 3.0% in June. Furthermore, economists also expect a decline in building permits.

Housing sector data influences the US dollar, especially during economic uncertainty. Economists view the housing sector as a barometer for the US economy. Deteriorating housing market conditions could impact consumer confidence and spending.

Michigan Consumer Sentiment

Economists predict the Michigan US Consumer Sentiment Index will increase from 66.4 in July to 66.9 in August.

Upward trends in consumer sentiment may indicate stronger consumer spending. Higher consumer spending could ease concerns about a hard US landing as it contributes over 60% to GDP.

Expert Views on the US Economy and the Fed

Parker Ross remarked on the jobless claims data from Thursday, saying,

“Overall, we are still seeing a very gradual deterioration underway in the jobless claims data. Continuing claims and insured unemployment rates reflect more labor market stress than initial claims, which is consistent with other indicators suggesting layoffs remain low but workers are struggling to find a new job once unemployed.”

US initial jobless claims unexpectedly declined from 234k in the week ending August 3 to 227k in the week ending August 10. Recently, the market focus has shifted from inflation to the US labor market.

The next US Jobs Report could dictate the Fed’s September interest rate decision. A 50-basis point Fed rate cut, combined with an RBA rate hike, could significantly narrow the interest rate differential and support an AUD/USD move toward $0.70.

Short-Term Forecast: Bullish

Near-term AUD/USD trends will hinge on the US housing sector and consumer sentiment data. Weaker-than-expected figures could support multiple 2024 Fed rate cuts, impacting buyer demand for the US dollar.

Investors should remain alert, with 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 hovered above the 200-day EMA while remaining below the 50-day EMA, sending bearish near-term but bullish longer-term price signals.

A breakout from the 50-day EMA could give the bulls a run at the top trend line. Furthermore, a break above the top trend line could signal a move toward the $0.67003 resistance level.

US economic data and central bank commentary require consideration on Friday.

Conversely, a drop below the 200-day EMA would bring the $0.65760 support level into play. A fall through the $0.65760 support level could give the bears a run at the $0.65500 handle.

With a 14-period Daily RSI reading of 51.64, the Aussie dollar could rise to the $0.67003 resistance level before entering overbought territory.