Australian Dollar Weekly Forecast: The RBA, Aussie Inflation, and the US CPI Report

Weekly Overview

In the week ending October 4, the AUD/USD pair slid by 1.55%, closing the week at $0.67911. The AUD/USD reached a Monday high of $0.69420 before sliding to a Friday low of $0.67851.

Aussie Labor Market and Business Confidence

On Tuesday, October 8, ANZ-Indeed Job Ads and NAB Business Confidence figures will require consideration. Economists expect job ads to increase by 0.4% in September, following a 2.1% slide in August.

Labor market conditions remain crucial for the RBA, giving job ad trends significant weighting. Higher-than-expected ads could signal a pickup in job creation and wages. Higher wages may fuel consumer spending and demand-driven inflation, possibly delaying an RBA rate cut until 2025.

With traders eying labor market conditions, business confidence trends will also draw interest. Economists forecast the NAB Business Confidence Index to increase from -4 in August to +2 in September. Improving business confidence may suggest increasing investment and job creation.

Better-than-expected data may support an AUD/USD move toward $0.68500 on expectations of a higher-for-longer RBA rate path.

Aussie Consumer Confidence Crucial for Consumption Outlook

On Wednesday, October 9, the Westpac Consumer Confidence Index could influence Aussie dollar demand. Economists predict the Index will increase by 0.8% in October after a 0.5% drop in September.

Upward trends in consumer confidence could indicate a pickup in consumer spending. Improving consumer spending trends could boost the Aussie economy as private consumption accounts for over 50% of GDP. Furthermore, consumer confidence is a leading indicator of inflation.

Consumer Inflation Expectations to Test the RBA’s Inflation Theory

Consumer inflation expectations will put the spotlight on the RBA on Thursday, October 10. Economists forecast consumer inflation expectations of 4.3% in October, down from 4.4% in September.

Softer inflation expectations could counter the influence of improving labor market conditions. Lower inflation expectations may suggest a pullback in consumer spending, possibly dampening inflationary pressures. Consumers delay spending plans if they expect prices to soften in the near term.

A larger-than-expected decline could raise expectations of a Q4 2024 RBA rate cut.

RBA Meeting Minutes and Speeches

While the economic data will impact buyer demand for the Aussie dollar, the RBA will also be under the spotlight.

On Tuesday, the RBA Meeting Minutes will be the focus. During the RBA Press Conference, Governor Michele Bullock reduced bets on a Q4 RBA rate hike, saying,

“We didn’t explicitly discuss an interest rate rise in this meeting. Instead, we discussed changes since August.”

The Meeting Minutes may reaffirm the RBA’s shift in outlook toward monetary policy. Discussions about the conditions to cut interest rates need consideration.

In addition, RBA Board Members Hauser (Tues), Kent (Wed), and Hunter (Thurs) are on the calendar to speak. Insights into the inflation outlook and interest rates could move the dial.

RBA Concerns About the Economic Outlook and Expert Views

Governor Michele Bullock emphasized the influence of consumer spending on the RBA rate path and the Aussie economy, stating,

“Weaker than expected momentum in H1 2024 suggests there is some risk that consumption could remain more subdued than expected.”

AMP Head of Investment Strategy and Chief Economy Shane Oliver commented on consumption trends, stating,

“The ABS’ Aug Monthly Household Spending Indicator was flat (despite a rise in retail sales) & slowed to 1.7% yoy, pointing to ongoing weakness in real consumer spending. Annual grth in discretionary & essential spending both slowed.”

Higher savings could further boost expectations of a Q4 2024 RBA rate cut.

US Economic Calendar: Inflation and the Fed Rate Path

On Thursday, the US CPI Report could impact investor bets on a 25-basis point November Fed rate cut.

Economists forecast the annual inflation rate to ease from 2.5% in August to 2.3% in September. A softer-than-expected print may raise expectations of a 25-basis point Fed rate cut. However, investors could bet on a 50-basis point Fed rate cut if inflation falls below the 2% target.

Softer inflation and bets on a 50-basis point Fed rate cut could push the AUD/USD toward $0.68500. Conversely, higher-than-expected inflation may send the AUD/USD below $0.67.

On Friday, producer prices also require consideration as these are a leading indicator for consumer prices. Economists expect producer prices to increase by 1.3% year-on-year in September, down from 1.7% in August. Softer producer price trends may suggest weakening demand, supporting a more dovish Fed rate path. US producers lower prices as demand wanes, reducing consumer prices.

Beyond the numbers, the FOMC Meeting Minutes (Wed) and FOMC Member speeches could also move the dial. Investors should look for reactions to the US Jobs Report and views on the Fed rate path.

Short-Term Forecast:

The near-term trend for the AUD/USD will hinge on central bank chatter, Aussie inflation data, and the US CPI Report. Softer Aussie inflation expectations could raise expectations of a Q4 2024 RBA rate cut. However, a marked drop in the US inflation rate may reignite bets on a 50-basis point Fed rate cut, possibly titling monetary policy divergence in the Aussie dollar’s favor.

Expectations of a narrower interest rate differential between the US and Australia could push the AUD/USD toward $0.68500.

Investors should remain vigilant. Economic indicators from Australia and the US will be crucial for the AUD/USD pairing. However, investors should also monitor news updates on the Middle East conflict. A further escalation could trigger a flight to safety, possibly sending the AUD/USD below $0.67. Stay informed with our latest updates and insights to navigate the Forex markets effectively.

AUD/USD Price Action

Daily Chart

Despite last week’s reversal, the AUD/USD remains above the 50-day and 200-day EMAs, sending bullish price signals.

An Aussie dollar break above the $0.68006 resistance level could support a move toward $0.68500. Furthermore, a breakout from $0.68500 may give the bulls a run at the September 30 high of $0.69420.

Economic data from Australia, central bank chatter, the US CPI Report, and the Middle East require consideration.

Conversely, an AUD/USD break below the 50-day EMA may signal a fall toward the $0.67050 support level.

With a 14-period Daily RSI reading of 49.49, the AUD/USD could drop to the $0.67050 support level before entering oversold territory.