AUD to USD Forecast: Australian Economy in Focus Amid RBA Rate Path Speculation

Australian Economy in the Spotlight

On Wednesday, economic data from Australia will influence buyer demand for the AUD/USD. The Westpac/Melbourne Institute (MI) Leading Index will be in focus. Economists forecast the MI Leading Index to increase 0.2% in March after advancing 0.1% in February.

The Index provides investors with an outlook for the Australian economy. Components include the ASX 200, commodity prices, labor market-related indicators, yield spreads, consumer sentiment, and US industrial production.

Given investors’ focus on the RBA interest rate decision in May, attention to the Index’s sub-components is warranted. Labor market conditions will be a focal point ahead of official labor market numbers on Thursday.

Weaker labor market-related sub-components could influence bets on an RBA rate cut. A deteriorating labor market could affect wage growth and reduce disposable income. Downward trends in disposable income would impact consumer spending and dampen demand-driven inflation.

In addition to the data, monitoring stimulus discussions from Beijing and news updates from the Middle East is crucial.

US Economic Calendar: Fed Speakers in the Spotlight

On Wednesday, investors should monitor FOMC member speeches throughout the day. FOMC members Michelle Bowman and Loretta Mester are on the calendar to speak.

After the hawkish overnight comments from Fed Chair Powell, FOMC member alignment could further reduce bets on a 2024 Fed rate cut. On Tuesday, Fed Chair Powell stated that the Fed needed more confidence about inflation returning to target.

Fed Chair Powell impacted investor sentiment regarding the Fed rate path.

According to the CME FedWatch Tool, the probability of a 25-basis point Fed June rate cut fell from 56.1% (April 9) to 18.8% (April 16). The chances of the Fed leaving interest rates at 5.50% in September increased from 8.5% to 31.5% over the same period.

Short-Term Forecast

Near-term AUD/USD trends will likely hinge on Australian employment data, stimulus chatter from Beijing, and Fed speakers. Weaker Australian labor market data could tilt monetary policy divergence toward the US dollar. However, a stimulus package from Beijing would boost buyer appetite for the Aussie dollar.

AUD/USD Price Action

Daily Chart

The AUD/USD sat well below the 50-day and 200-day EMAs, confirming the bearish price trends.

An Aussie dollar breakout from the April 16 high of $0.64446 would support a move to the $0.64582 resistance level. A break above the $0.64582 resistance level would bring the $0.65 handle and the 50-day EMA into play.

Considerations should include stimulus discussions from Beijing, updates from the Middle East, and statements from the Fed.

Conversely, an AUD/USD drop below the $0.64 handle could give the bears a run at the $0.62713 support level.

Given a 14-period Daily RSI reading of 35.73, the AUD/USD could fall to the $0.63500 level before entering oversold territory.