Australian Dollar Weekly Forecast: China and the Aussie Labor Market in Focus

Weekly Overview

In the week ending October 11, the AUD/USD pair declined by 0.63%, closing the week at $0.67484. The AUD/USD climbed to a Monday high of $0.68099 before dropping to a Thursday low of $0.66997.

China Ministry of Finance and Weekend Stats to Set the Tone

On Saturday, October 12, China’s Ministry of Finance (MoF) held a press conference, discussing plans to boost the economy. CN Wire remarked on the press conference, stating,

“There’s no new stimulus specified to incentivize consumption, which has been a weak link in the economy, and no specifics on subsidies for households either. And while Lan said local governments have 2.3 trillion yuan of funds from special bonds that they can use by the end of this year, that is not fresh stimulus.”

Economic data released later in the weekend gave insights into the current demand environment.

China’s annual inflation rate eased from 0.6% in August to 0.4% in September, indicating weaker demand. Producer prices sent a gloomier message, falling by 2.8% year-on-year in September after declining by 1.8% in August.

The sharper decline in producer prices indicated a demand slump, which would further fuel deflationary pressures. Producers tend to lower prices in an increasingly competitive environment, passing savings on to consumers.

Economic indicators from China are significant as one-third of Australian exports head for China, with 20% of the Aussie workforce in trade-related jobs. Weaker demand could impact the Aussie economy as it has a trade-to-GDP ratio of over 50%.

The lack of fresh stimulus and inflation figures may send the AUD/USD lower at the start of the week.

Aussie Labor Market Data: Pivotal for the RBA Rate Path

Looking ahead, Australian labor market data could impact the AUD/USD pair and RBA rate cut bets on Thursday, October 17. Economists expect employment to increase by 25.2k in September after rising by 47.5k in August and for the unemployment rate to remain at 4.2%.

Weaker-than-expected labor market data could fuel speculation about a Q4 RBA rate cut. Higher unemployment could affect wage growth, dampening consumer spending and inflation. The RBA may cut interest rates to reduce borrowing costs, support hiring, and boost consumption.

RBA Views on the Labor Market and the Rate Path

During September’s RBA press conference, RBA Governor Michele Bullock commented on the labor market, stating,

“Labor market conditions have eased but remain tight. Employment continues to grow, and the layoff rate remains low, while job vacancies are elevated.”

An unexpected rise in unemployment could push the AUD/USD toward $0.67. Conversely, a lower unemployment rate could lower bets on a late Q4 2024 rate cut, possibly driving the AUD/USD toward $0.68.

Upcoming US Retail Sales and Jobless Data: Key for Fed Outlook

Turning to the US, retail sales and jobless claims data will require consideration on Thursday. Economists forecast retail sales to increase by 0.3% in September, following a rise of 0.1% in August. Higher-than-expected sales could fuel demand-driven inflation, possibly lowering expectations of multiple Q4 Fed rate cuts.

Additionally, economists predict initial jobless claims will drop from 258k (week ending October 5) to 241k (week ending October 12). A sharper-than-expected drop could reduce the likelihood of multiple Q4 Fed rate cuts. Tighter labor market conditions may support wage growth and consumer spending. Higher consumer spending could push inflation higher.

Beyond the numbers, investors should consider FOMC member speeches. Insights into the economic outlook, inflation, the labor market, and the Fed rate path could move the dial.

Short-Term Forecast:

The near-term trend for the AUD/USD will hinge on potential stimulus measures from Beijing, Aussie labor market data, and US economic indicators. Fresh stimulus measures from Beijing and better-than-expected labor market data could boost Aussie dollar demand. However, upbeat US retail sales and labor market data may drive US dollar demand, pressuring the AUD/USD lower.

Investors should remain vigilant. Economic indicators from Australia and the US will be crucial for the AUD/USD pairing. Stay informed with our latest updates and insights to navigate the Forex markets effectively.

AUD/USD Price Action

Daily Chart

Following last week’s pullback, the AUD/USD hovers below the 50-day EMA while holding above the 200-day EMA. The indicators send bearish near-term but bullish longer-term price signals.

An Aussie dollar break out from the 50-day EMA could signal a move toward the $0.68006 resistance level. Furthermore, a break above the $0.68006 resistance level may give the bulls a run at $0.68500.

Economic data from Australia, central bank chatter, the US economic calendar, and stimulus-related news from Beijing require consideration.

Conversely, an AUD/USD drop below the $0.67050 support level could signal a fall toward the 200-day EMA.

With a 14-period Daily RSI reading of 45.90, the AUD/USD may fall to the 200-day EMA before entering oversold territory.