AUD to USD Forecast: Aussie Faces Heat as China PMIs Stumble

Highlights

• AUD/USD experienced a slight gain on Friday, with a notable 1.17% rally recorded on the preceding Thursday.
• Recent economic figures from China hint at potential challenges ahead for the Australian trade and workforce.
• Later today, investor eyes turn to the US ISM Manufacturing PMI and Fed Chair Powell.

Friday Overview

On Friday, the AUD/USD gained 0.05%. Following a 1.17% rally on Thursday, the Aussie dollar ended the day at $0.64299. The Aussie dollar fell to a low of $0.64210 before reaching a high of $0.65010.

China Private Sector Woes to Pressure the AUD/USD

Economic indicators from China will set the tone this morning. The Caixin Manufacturing PMI fell from 51.0 to 50.6, with the Services PMI down from 51.8 to 50.2. Economists forecast PMIs of 51.2 and 52.0, respectively.

Weak economic indicators from China adversely impact the Aussie dollar and the Australian economy. China accounts for one-third of Australian exports. The Australian trade-to-GDP ratio sits above 50%, with 20% of the workforce in trade-related jobs.

Australian manufacturing PMI numbers for September could add to the negative mood. Downward revisions to the flash PMI would align with the weaker-than-expected PMIs from China. According to the flash survey, the Judo Bank Manufacturing PMI fell from 49.6 to 48.2 in September.

US Manufacturing Sector and Fed Chair Powell in Focus

Later today, the ISM Manufacturing PMI will draw investor interest. An unexpected fall in the headline PMI would raise fears of a hard landing. Economists forecast the ISM Manufacturing PMI to increase from 47.6 to 47.7 in September.

Notably, the manufacturing sector contributes less than 30% to the US economy. However, investors will likely be sensitive to signs of deepening cracks in the US economy.

Beyond the numbers, Fed Chair Powell is on the calendar to speak today. Hawkish comments would likely drive demand for the US dollar.

Short-Term Forecast

The AUD/USD will likely remain under pressure following the recent PMIs from China. However, near-term trends will hinge on the RBA interest rate decision on Tuesday and the US Jobs Report on Friday.

AUD/USD Price Action

Daily Chart

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

An AUD/USD drop below the $0.63854 support level would bring the trend line into view. The weaker PMI numbers from China and a hawkish Fed Chair Powell speech will likely pressure the AUD/USD.

However, an AUD/USD return to $0.6450 would support an Aussie dollar move to the 50-day EMA and the $0.64900 resistance level. Selling pressure will likely intensify in the $0.64840 – $0.64900 range. The 50-day EMA is confluent with the $0.64900 resistance level.

A 14-period Daily RSI reading of 48.78 supports an AUD/USD fall through the $0.63854 support level before entering oversold territory (typically below 30 on the RSI scale).

4-Hourly Chart

The AUD/USD sits above the 50-day EMA while remaining below the 200-day EMA, sending bullish near-term but bearish longer-term price signals.

A break above the 200-day EMA would support an AUD/USD move toward the $0.64900 resistance level. However, a fall below the 50-day EMA would give the bears a run at the $0.63854 support level.

The 14-period 4-Hourly RSI at 52.43 indicates an AUD/USD break above the 200-day EMA before entering overbought territory (typically above 70 on the RSI scale).