AUD to USD Forecast: Aussie Inflation Puts the RBA in the Spotlight

Monthly CPI Indicator Puts the RBA in the Spotlight

On Wednesday, Australian inflation figures for February will impact buyer demand for the AUD/USD. Hotter-than-expected numbers could put an RBA rate hike back on the table. Economists forecast the monthly CPI Indicator to increase from 3.4% to 3.5%.

A more hawkish RBA rate path could raise borrowing costs, reducing disposable income. Downward trends in disposable income could affect consumer spending, dampening demand-driven inflation.

In March, the RBA remained concerned about inflation amidst uncertainty about the outlook for household spending. The Westpac Consumer Confidence Survey for March signaled a likely pullback in spending, with consumers concerned about a higher-for-longer RBA rate path.

Nonetheless, the RBA believes taming inflation remains a priority over household income and the economy.

Beyond the numbers, investors must also consider chatter from Beijing. Despite an uncertain macroeconomic environment, Beijing has held back fiscal stimulus measures to shore up the Chinese economy.

US Economic Calendar: Fed Speakers in Focus

On Wednesday, investors must monitor Fed commentary following the recent FOMC Economic Projections. Deviations from the median outlook for interest rates could impact buyer demand for the AUD/USD.

In the first half of the week, Fed speakers sent mixed signals vis-à-vis interest rate trajectory.

• Raphael Bostic toed a more hawkish line, pairing his projection for interest rate cuts from two to one 25-bais point interest rate cut in 2024.
• Lisa Cook called for caution on easing monetary policy.
• In contrast, Austan Goolsbee saw housing inflation trending in the right direction, supporting the median projection from the FOMC Economic Projections.

According to the CME FedWatch Tool, the chances of a 25-basis point May Fed rate cut increased from 12.3% (March 22) to 14.5% (March 26). Moreover, the probability of a 25-basis point June rate cut has declined from 66.7% to 58.3%. The latest figures highlight the uncertainty surrounding the timing of a Fed interest rate cut.

Fed speakers need monitoring amidst the increasing uncertainty. However, the US Core PCE Price Index numbers (March 29) and the US Jobs Report (April 5) could decide the outcome of the June FOMC meeting.

Short-Term Forecast

Near-term AUD/USD trends will hinge on the Australian and US inflation figures and central bank chatter. US inflation figures on Friday could significantly influence bets on an H1 2024 Fed rate cut. However, Australian inflation numbers could put a rate hike back on the table and tilt monetary policy divergence toward the Aussie dollar.

AUD/USD Price Action

Daily Chart

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

An Aussie dollar break above the 50-day EMA could give the bulls a run at the $0.65760 resistance level and the 200-day EMA.

Australian inflation numbers and Fed commentary need consideration.

Conversely, an AUD/USD fall through the $0.65 handle could signal a drop to the $0.64582 support level.

With a 14-period Daily RSI reading of 46.13, the AUD/USD could fall below the $0.64582 support level before becoming oversold.