AUD to USD Forecast: Aussie Consumer Confidence Spiked in February

Highlights

• The AUD/USD gained 0.12% on Monday, ending the session at $0.65305.
• On Tuesday, Australian consumer confidence numbers garnered investor interest early in the session.
• Later in the session, the US CPI Report warrants investor attention.

Monday Overview of the AUD/USD

The AUD/USD gained 0.12% on Monday. After rising by 0.47% on Friday, the Australian dollar ended the session at $0.65305. The Australian dollar fell to a low of $0.65118 before rising to a high of $0.65430.

Consumer Confidence Slips in February

On Tuesday, Australian consumer confidence numbers for February garnered investor interest. The Westpac Consumer Confidence Index jumped by 6.2% to 86.0. Economists forecast the Index to fall by 0.8% to 80.4. The Westpac Consumer Confidence Index slid by 1.3% to 81.0 in January.

Significantly, a strengthening consumer confidence environment could raise the bets on an RBA rate hike. A pickup in consumer confidence may fuel consumer spending and demand-driven inflationary pressures.

Later this morning, the NAB Business Confidence Index also needs consideration. Economists forecast the Index to increase by 1 point in January after falling by 1 point in December. A pickup in business confidence could signal job creation.

Tighter labor market conditions may support wage growth and disposable income. Upward trends in disposable income could fuel consumer spending and demand-driven inflation.

US Economic Calendar: US Inflation in the Spotlight

On Tuesday, US inflation will be under the spotlight. The US CPI Report for January will likely influence sentiment toward Fed interest rate goals. Economists forecast the US annual inflation rate to soften from 3.4% to 3.0% and core inflation to decline from 3.9% to 3.8%.

Sticky inflation could force the Fed to leave interest rates higher for longer. A more hawkish than projected rate path may impact borrowing costs and reduce disposable income. Downward trends in disposable income could curb consumer spending and dampen demand-driven inflation.

In recent speeches, FOMC members called for patience vis-à-vis the timeline for cutting interest rates. Sticky inflation could close the door on a March Fed rate cut and test bets on a May Fed rate cut.

According to the CME FedWatch Tool, the probability of a March Fed rate is 15.0%. The chances of a May Fed rate cut are 52.3%.

Short-Term Forecast

Short-term trends in AUD/USD remain hinged on US inflation, Australian labor market data, and central bank commentary. Softer US inflation and a tighter Australian labor market could tilt monetary policy divergence toward the Aussie dollar. The RBA continues to leave a rate hike on the table.

AUD/USD Price Action

Daily Chart

The AUD/USD sat below the 50-day and 200-day EMAs, sending bearish price signals.

An AUD/USD breakout from the $0.65500 handle would bring the EMAs and $0.66162 resistance level into play.

On Tuesday, consumer and business confidence numbers from Australia and the US CPI Report need consideration.

However, a fall through the $0.65 handle would give the bears a run at the $0.64900 support level.

A 14-period Daily RSI reading of 42.00 suggests an AUD/USD break below the 0.64900 support level before entering oversold territory.

4-Hourly Chart

The AUD/USD sat below the 50-day and 200-day EMAs, affirming the bearish price signals.

An AUD/USD break above the 50-day EMA would give the bulls a run at the 200-day EMA and $0.66162 resistance level.

However, a drop below the $0.65 handle would support a fall to the $0.64900 support level. A drop below the $0.64900 support level would bring the trend line into view.

The 14-period 4-Hourly RSI at 54.18 suggests an AUD/USD move to the $0.66162 resistance level before entering overbought territory.