Australian Dollar Weekly Forecast: RBA and Inflation May Fuel an AUD/USD Run at $0.70

Weekly Overview

In the week ending September 20, the AUD/USD rallied 1.54%, closing the week at $0.68039. The pair surged from a Monday opening price of $0.66977 to a Thursday high of $0.68390.

Australian Private Sector PMIs in Focus

On Monday, September 23, flash private sector PMIs could fuel Aussie dollar demand. The Judo Bank Services PMI will likely influence the RBA rate path more, accounting for over 70% of the Aussie economy.

Economists forecast the Judo Bank Services PMI to increase from 52.5 in August to 52.6 in September. Beyond the headline PMI, investors should also consider subcomponents, including employment and prices. A higher-than-expected Services PMI could temper investor expectations of a Q4 2024 RBA rate cut.

Rising input prices and job creation rates may influence sentiment toward the RBA rate path. Upward trends in job creation and wages could support disposable income, possibly boosting consumer spending. Higher consumer spending may fuel demand-driven inflation, which could delay an RBA rate cut until 2025.

Better-than-expected PMI numbers could push the AUD/USD toward $0.70 as investors expect the interest rate differential to narrow further in Q4 2024.

RBA Interest Rate Decision and Press Conference

The RBA interest rate decision and press conference will be crucial for the AUD/USD on Tuesday, September 24.

Economists expect the RBA to maintain the cash rate at 4.35%, increasing focus on the RBA press conference. Views on the labor market, inflation, and the RBA rate path will impact buyer demand for the Aussie dollar.

Concerns about tight labor market conditions, sticky inflation, and cutting rates too early may drive the AUD/USD toward $0.70. Conversely, expectations of softer inflation and labor market conditions could halt the AUD/USD’s uptrend, possibly sending the AUD/USD below $0.67500.

Australian Monthly CPI Indicator

On Wednesday, September 25, the Australian Monthly CPI Indicator could affect the timing of an RBA rate cut.

Economists predict the Aussie inflation rate will fall from 3.5% in July to 3.1% in August. A larger-than-expected decline would bring inflation within the RBA’s 2-3% target range, supporting a more dovish RBA rate path.

Rising bets on a Q4 2024 RBA rate cut could drag the AUD/USD below $0.67500.

RBA Financial Stability Review

The RBA will wrap up the week with its Financial Stability Review. Views on households’ ability to pay for essentials and meet debt payments, the global macroeconomic environment, and bank preparedness to absorb higher nonperforming loan rates (NPLs) require consideration.

Expectations of a deteriorating global economy, household finances, and banking sector stability could bolster bets on a Q4 2024 RBA rate cut. A lower cash rate would reduce borrowing costs, possibly supporting households while reducing NPL risks. Lower NPL risks could lead to looser credit terms and drive private consumption.

Expert Views on the RBA Rate Path

AMP Head of Investment Strategy and Chief Economist Shane Oliver recently commented on the RBA rate path, stating,

“US & Aust econ cycles r more aligned now & the Fed joining in global rate cutting is a further sign inflationary pressures are giving way to growth worries. This will impact Aust. So just as the Fed has rapidly pivoted to cuts, the RBA is likely to follow, albeit with a lag.”

Oliver added,

“The Fed cutting rates will not “cause” the RBA to follow – unless there is an unlikely surge in the $A. There have been several occasions when the RBA & Fed have diverged – eg RBA hiking rates after the GFC when the Fed held & RBA holding/cutting when Fed was hiking from 2015…”

US Economic Calendar

It is another important week for the US dollar, with economic indicators likely to further influence sentiment toward the Fed rate path.

On Monday, the S&P Global Services PMI will require consideration, contributing over 70% to the US economy. Softer-than-expected headline and input price figures could fuel bets on multiple Q4 2024 Fed rate cuts.

Consumer confidence numbers on Tuesday and jobless claims data on Thursday will also garner investor interest. An unexpected spike in jobless claims could retrigger fears of a hard US economic landing, supporting a more dovish Fed rate path.

However, Friday’s US Personal Income and Outlays Report will likely be the key driver for the US dollar.

Economists forecast the Core PCE Price Index to hold steady at 2.6% in September. Lower-than-expected inflation numbers could raise investor expectations of multiple Q4 2024 Fed rate cuts.

Personal income and spending trends will also require consideration. Downward personal income and spending trends could fuel speculation about November and December Fed rate cuts.

Rising bets on multiple Q4 2024 Fed rate cuts could push the AUD/USD toward $0.70. Conversely, better-than-expected Services PMI, Jobless Claims, and Core PCE Price Index numbers could reduce expectations of Q4 2024 Fed rate cuts, possibly pulling the AUD/USD below $0.67.

Beyond the numbers, Fed speakers will move the dial. Notably, Fed Chair Powell is on the calendar to speak on Thursday.

Short-Term Forecast:

The near-term trend for the AUD/USD will hinge on the inflation data and the RBA press conference. Softer-than-expected US inflation numbers and RBA concerns about cutting rates too early could tilt monetary policy divergence toward the Aussie dollar. Expectations of a narrow interest rate differential could push the AUD/USD toward $0.70.

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

The AUD/USD hovers well above the 50-day and 200-day EMAs, confirming bullish price trends.

An Aussie dollar break above the September 19 high of $0.68390 would support a move toward $0.69. Furthermore, a return to $0.69 could give the bulls a run at the $0.70 level.

The RBA interest rate decision and economic indicators from Australia and the US require consideration.

Conversely, an AUD/USD break below the $0.68006 support level could signal a drop toward the $0.67500 level. A fall through $0.67500 may bring the $0.67050 support level into play.

With a 14-period Daily RSI reading of 61.56, the AUD/USD could return to $0.68500 before entering overbought territory.