Aussie Dollar Weekly Forecast: Will Inflation Cement February RBA Rate Cut?

Aussie Dollar Recovery Continues: Key Drivers for Traders to Watch

The Aussie dollar extended its recovery against the US dollar amid easing concerns over US tariffs and US President Trump’s call for lower rates. Upcoming economic indicators and central bank moves are set to influence the AUD/USD pair’s path.

The AUD/USD pair rallied 1.99% in the week ending January 24, closing at $0.63101. After briefly dipping to a low of $0.61896, the pair surged to a high of $0.63303 before easing back. Notably, this marked only the fifth weekly gain in seventeen weeks.

Business Confidence in Focus

The NAB Business Confidence Index will draw investor interest on Tuesday, January 28. Economists expect the NAB Business Confidence Index to climb from minus 3 in November to plus 3 in December.

Improving sentiment could signal higher business investment and job creation. Rising employment may boost wages, driving consumer spending and demand-driven inflation. A higher inflation outlook could temper expectations for multiple RBA rate cuts, driving Aussie dollar demand. Conversely, an unexpected drop in sentiment may support a more dovish RBA rate path.

Will Aussie Inflation Cement a February RBA Rate Cut?

On Wednesday, January 29, crucial Aussie inflation figures will likely dictate the RBA rate path. Economists expect the RBA Trimmed Mean CPI to fall to 3.3% year-on-year in Q4 2024, down from 3.5% in Q3 2024.

Softer inflation could reinforce bets on a February RBA rate cut and signal a more dovish RBA rate path. Expectations of multiple RBA rate cuts would pressure the Aussie dollar. However, hotter-than-expected numbers could ease bets on a February move, sending the AUD/USD pair higher.

Aussie Trade Data to Impact Economic Outlook

Australia trade data will take center stage on Thursday, January 30. Economists project exports to fall 6.6% quarter-on-quarter in Q4 2024 after dropping by 4.3% in Q3 2024. A sharper decline could bolster expectations for rate cuts. Australia has a trade-to-GDP ratio of over 50%, with 20% of its workforce in trade-related jobs.

Weaker economic conditions may affect employment, potentially dampening wage growth. Conversely, higher-than-expected exports may ease concerns about the Australian economy, bolstering Aussie dollar demand. Nevertheless, Wednesday’s inflation figures will impact the AUD/USD pair more.

Aussie Producer Prices and the RBA Rate Path

On Friday, January 31, producer prices may further influence sentiment toward the RBA rate path. Economists expect producer prices to rise 3.6% year-on-year in Q4 2024, down from 3.9% in Q3 2024. Softer producer prices could signal weakening demand and reduced inflationary pressures. This would likely boost RBA rate cut bets. Conversely, higher producer prices may indicate a pickup in inflationary pressures, driving Aussie dollar demand.

Expert Views on the Aussie Economy and RBA Rate Path

Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, remarked on recent private sector PMI data, stating,

“Aust Dec composite PMI +0.1pt to a still soft 50.3 with services down and manu up. Emp remained -ve. Output & input prices rose, esp the latter mainly due to manu input costs. Output prices remain around their pre-covid range so it shouldn’t stop a Feb rate cut if Dec CPI is good.”

Oliver underscored the significance of Wednesday’s inflation data.

Potential AUD/USD Responses to Aussie Stats

Stronger-than-expected data supporting a more hawkish RBA rate path could push the AUD/USD pair beyond the $0.63623 resistance level toward $0.65. However, weak numbers and rising expectations on multiple 2025 RBA rate cuts may pull the AUD/USD below the upper band of the descending channel.

US Economic Calendar: Consumer Confidence, the Fed, and Inflation in Focus

Turning to the US dollar, consumer confidence figures will draw interest on January 28. A marked pickup in consumer sentiment could suggest higher consumption, signaling a more hawkish Fed rate path. However, markets could raise expectations of a near-term Fed rate cut if the CB Consumer Confidence Index drops below 100.

On January 29, the Fed will deliver its first interest rate decision of the year. Markets expect the Fed to maintain interest rates at 4.5%. The FOMC press conference will be the focal point, barring an unexpected rate cut. Confidence in falling inflation and support for an H1 2025 Fed rate cut could pressure the US dollar. However, a hawkish stance amid Trump’s policies could temper expectations of policy easing, boosting US dollar demand.

On January 30, the market focus will shift to the highly influential US Personal Income and Outlays Report. Economists forecast the Core PCE Price Index to rise 2.8% year-on-year in December, mirroring November’s trend.

Softer inflation may support a more dovish Fed rate path while rising inflation could reduce expectations of an H1 2025 move. Personal income and spending trends will also need consideration as leading inflation indicators.

Beyond the numbers, FOMC members’ reaction to Friday’s inflation figures and views on Trump’s policies will also move the dial.

Short-Term Forecast:

The AUD/USD outlook hinges on inflation data and the Fed’s forward guidance. Softer Aussie inflation could drag the AUD/USD below $0.62, while resilient inflation may temper RBA cut bets, supporting a move toward $0.65.

Meanwhile, the Fed’s monetary policy stance and the US inflation figures will likely impact the AUD/USD pair more. A hawkish Fed stance and sticky inflation could pull the AUD/USD pair toward $0.60. However, lower inflation and support for Fed rate cuts may drive the pair to $0.65.

Investors should monitor economic releases and central bank commentary closely. Access our detailed reports here for comprehensive AUD/USD insights.

AUD/USD Price Action

Daily Chart

Despite the recent upswing in the AUD/USD pair, the pair remains below the 50-day and 200-day Exponential Moving Average (EMAs), sending bearish price signals.

An Aussie dollar break above the 50-day EMA could support a move toward the $0.63623 resistance level. A break above the $0.63623 resistance level may enable the bulls to target the $0.65 level and the 200-day EMA.

Conversely, an AUD/USD drop below $0.62 would bring the upper trend line of the descending channel into view. A fall through the upper trend line could signal a slide toward the crucial $0.60 psychological support level and the lower trend line.

With a 14-period Daily Relative Strength Index (RSI) reading of 56.88, the AUD/USD could move to the 200-day EMA before entering overbought territory (RSI above 70).