AUD to USD Forecast: Australian Dollar Steadies with Eyes on PBoC and US Federal Reserve

Highlights

• The AUD/USD recovered from a Tuesday session low of $0.64277 to end the day up 0.26% at $0.64534.
• Eased concerns about China’s economy lends support to the AUD/USD’s positive trajectory.
• Federal Reserve’s impending decision on interest rates shapes the AUD/USD outlook.

Tuesday Overview

On Tuesday, the AUD/USD rose by 0.26%. Following a 0.14% gain on Monday, the Aussie dollar ended the day at $0.64534. The Aussie dollar fell to a low of $0.64277 before rising to a high of $0.64737.

People’s Bank of China in the Pre-Fed Spotlight

Concerns about the potential collapse of the Chinese economy have eased, providing support to the AUD/USD. An improving demand outlook would be a positive signal for the Australian economy, the AUD/USD, and the Australian labor market. The Australian economy is heavily trade-oriented, with a trade-to-GDP ratio of 50%. Notably, 20% of Australian jobs are trade-related

This morning, the People’s Bank of China (PBoC) will set the Loan Prime Rates (LPR) for one and five years. After a series of stimulus measures to support the economy, economists expect the PBoC to leave the LPRs unchanged. Investors might interpret the decision to leave the LPRs unchanged as a positive sign. Any cuts to the LPRs could signal more concerns about the Chinese macroeconomic environment.

While investors will respond to the PBoC policy decision, the market focus will remain on the US Federal Reserve.

The Fed and FOMC Economic Projections to Dictate AUD/USD Trajectory

After a week of speculation on the Fed interest rate trajectory, the markets will learn the likely Fed interest rate path.

Investors expect the US Federal Reserve to leave interest rates unchanged. However, uncertainty about the November policy decision continues to support the greenback.

Barring a surprise Fed rate hike, the markets will focus on the FOMC economic projections. Upbeat revisions to GDP, Inflation, and Unemployment forecasts should fuel bets on a November hike. Notably, the FOMC could also shift the timing of the first Fed interest rate cut to 2025. The “upbeat revision” scenario would pressure the AUD/USD.

Short-Term Forecast

The near-term AUD/USD trajectory hinges on the Fed interest rate decision and FOMC economic projections. A hawkish Fed pause on interest rate moves would support an AUD/USD retreat to sub-$0.6350. The likely end to the RBA monetary policy tightening cycle would amplify the impact of a hawkish Fed policy outlook.

AUD/USD Price Action

Daily Chart

The AUD/USD remained below the $0.64900 resistance level. Notably, the AUD/USD sat below the 50-day and 200-day EMAs, reaffirming bearish price signals. Failure to break above the $0.64900 resistance level would leave the $0.63854 support level in play. A break below the support level would give the bears a run at the trend line.

However, a break above the $0.64900 resistance level would bring the 50-day EMA into play. A dovish Fed monetary policy pause would support an AUD/USD return to $0.65.

The RSI reading of 49.55 supports an AUD/USD return to sub-$0.64 before entering oversold territory.

4-Hourly Chart

The AUD/USD sits above the 50-day EMA, reflecting short-term bullishness, but hovers below the 200-day EMA, signaling long-term bearishness.

A break above the 200-day EMA would give the bulls a run at the $0.64900 resistance level. However, failure to break through the 200-day EMA would leave sub-$0.6450 and the 50-day EMA in view.

The 14-period 4-Hourly RSI at 56.11 supports an Aussie dollar break above the 200-day EMA before entering overbought territory.