AUD/USD Weekly Forecast: Aussie Dollar Eyes $0.70 as Inflation Data Looms

Weekly Overview

In the week ending August 23, the AUD/USD rallied 1.89%, closing the week at $0.67933. The pair dropped to a low of $0.66613 before climbing to a Friday high of $0.67985.

Can the Aussie dollar climb to $0.70 for the first time since February 2023?

Inflation numbers from Australia and the US Personal Income and Outlays Report could be pivotal.

Australian Monthly CPI Indicator

On Wednesday, August 28, the Australian Monthly CPI Indicator will Aussie dollar demand.

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

Higher-than-expected numbers may raise expectations of a possible Q4 2024 RBA rate hike. RBA Governor Michele Bullock recently warned of a rate hike if inflation did not cool.

Sticky inflation could push the AUD/USD toward $0.70. Conversely, softer-than-expected inflation numbers could fuel speculation about a rate cut. A more dovish RBA rate path could send the AUD/USD pair below $0.67.

Expert Views on the RBA Rate Path

Judo Bank Chief Economic Advisor Warren Hogan remarked on the August PMI Survey, 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.”

Australian Retail Sales and Inflation

On Friday, August 30, Aussie retail sales figures for July will require investor consideration.

Economists expect retail sales to rise by 0.2% in July after an increase of 0.5% in June.

Upward trends in consumer spending could fuel demand-driven inflation, possibly raising expectations of an RBA rate hike.

Higher-than-expected retail sales could also support an AUD/USD push toward $0.70. Conversely, softer inflation and retail sales data may send the AUD/USD below $0.67.

Other Stats

Construction work done (Wednesday) and private sector credit (Friday) figures will also draw investor interest. However, the reports will likely play second fiddle to the inflation and retail sales data.

China Industrial Profits and the Aussie Economy

On Tuesday, August 27, industrial profit figures from China could impact buyer demand for the Aussie dollar.

Economists predict industrial profits will rise by 3.3% year-to-date, year-on-year, in July, down from 3.5% in June.

Lower industrial profits may signal a weakening demand environment, negatively affecting Australian trade terms and the Aussie dollar.

China accounts for one-third of Australian exports, with Australia having a trade-to-GDP ratio of over 50%. Additionally, 20% of the Australian workforce is in trade-related jobs.

A weaker labor market could affect wage growth, reduce disposable income, and curb consumer spending. A pullback in spending may dampen demand-driven inflation and affect the economic outlook. Private consumption contributes over 50% to GDP. A softer inflation and economic outlook could fuel speculation about an RBA rate cut.

Expert Views on China’s Demand for Steel and Production

AMP Head of Investment Strategy and Chief Economist Shane Oliver commented on the Chinese economy, stating,

“China new property sales remain weak as does steel demand and production.”

US Economic Calendar

It could be another crucial week for the US dollar as investors speculate about the size of a possible September Fed rate cut.

Consumer Confidence and the US Economy

The CB Consumer Confidence Index will influence US dollar demand on Tuesday, August 27.

Economists forecast the Index to drop modestly from 100.3 in July to 100.1 in August.

A larger-than-expected drop in consumer confidence could signal a sharp fall in consumer spending. Downward trends in consumer spending may affect the US economy as it contributes over 70% to GDP.

Initial Jobless Claims

The US labor market will face scrutiny on Thursday, August 29.

Economists predict initial jobless claims to increase from 232k in the week ending August 17 to 234k in the week ending August 24.

A spike in jobless claims may retrigger speculation about a possible US hard landing. Deteriorating labor market conditions could impact wage growth, possibly curbing consumer spending.

While the labor market data will be the focal point, revisions to Q2 GDP numbers also need consideration. However, the GDP numbers may have a muted impact on sentiment toward the Fed rate path. Investors and the Fed may give more weight to the labor market and other leading indicators, including consumption-related stats.

US Personal Income and Outlays Report

On Friday, August 30, the Personal Income and Outlays report could influence the size of a possible September Fed rate cut.

Economists forecast the Core PCE Price Index to hold steady at 2.6% in August.

Softer-than-expected inflation figures may bolster the case for a September rate cut. Downward personal income and spending trends may retrigger recession fears. Hard landing fears could raise bets on a 50-basis point rate cut.

Rising bets on a 50-basis point Fed rate cut could push the AUD/USD toward $0.70.

Short-Term Forecast:

The near-term trend for the AUD/USD will hinge on the Aussie and US inflation reports. Higher-than-expected inflation numbers from Australia could bolster expectations of an RBA rate hike. Conversely, weak US data could raise expectations of a 50-basis point Fed rate cut.

The AUD/USD could move toward $0.70 over the possibility of a narrower interest rate differential.

Investors should remain vigilant. Economic indicators from the US will be pivotal for the Fed and 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 remained comfortably above the 50-day and 200-day EMAs, affirming bullish price trends.

An Aussie dollar break above the $0.67967 resistance level could signal a move toward the $0.68500 handle. A return to $0.68500 could bring the $0.68996 resistance level into play.

Economic indicators from Australia, China, and the US require consideration.

Conversely, an AUD/USD drop below $0.67500 could signal a fall to the $0.67003 support level. A fall through the $0.67003 support level would bring the top trend line and the 50-day EMA into play.

With a 14-period Daily RSI reading of 68.09, the AUD/USD could break above the $0.67967 resistance level before entering overbought territory.