AUD to USD Forecast: Australian PMIs Signal Intensifying Price Pressures

Highlights

• The AUD/USD declined by 0.21% on Wednesday, ending the session at $0.65418.
• Better-than-expected US economic indicators left the Aussie dollar in negative territory.
• On Thursday, preliminary private sector PMIs for November could influence bets on an RBA rate hike.

Wednesday Overview of the AUD/USD

The AUD/USD declined by 0.21% on Wednesday. Following a 0.01% loss on Tuesday, the Aussie dollar ended the day at $0.65418. The Aussie dollar rose to a high of $0.65696 before falling to a low of $0.65213.

Australian Private Sector PMIs Send Mixed Signals

On Thursday, Australian preliminary PMI numbers for November garnered investor interest. The Judo Bank Manufacturing PMI fell from 48.2 to 47.7, with the Services PMI down from 47.9 to 46.3. A slump in new orders left the services PMI at the lowest level since September 2021. The Manufacturing PMI was at a 42-month low.

Despite the more marked contraction, firms across the private sector continued to increase staffing levels. Input and output prices increased, driven by energy, labor, and currency conversion costs. The upward trend in labor costs and the impact of output prices on inflation support a more hawkish RBA rate path. However, the fall in new orders would be a concern.

Market Bets on a May Fed Rate Cut Balanced

US economic indicators from Wednesday tested the market bets on a May Fed rate cut. A decline in jobless claims and better-than-expected consumer sentiment numbers suggest a more positive outlook for consumer spending.

Tight labor market conditions support wage growth and disposable income. An upward trend in disposable income fuels consumer spending and demand-driven inflationary pressures. A more hawkish Fed rate path would raise borrowing costs and reduce disposable income.

According to the CME FedWatch Tool, the probability of a May Fed rate cut eased from 47.4% to 43.4%. Private sector PMIs on Friday could give the markets more direction.

A larger-than-expected fall in the Services PMI would support a less hawkish Fed rate path. The US services sector contributes over 70% to the US economy. A contraction across the services sector could raise the threat of a hard landing. Significantly, the sector is a driving force behind inflation. A fall in input and output prices would also support bets on a May rate cut.

There are no US economic indicators to consider on Thursday. The US markets are closed for Thanksgiving.

Short-Term Forecast

Near-term trends will likely hinge on the US Services PMI on Friday. A contraction in the US services sector and a fall in input and output prices would support a May Fed rate cut. In contrast, the Australian private sector PMIs signaled a pickup in price pressures. The uptick in price pressures supports a more hawkish RBA rate path, tilting monetary policy divergence toward the Aussie dollar.

AUD/USD Price Action

Daily Chart

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

An AUD/USD break above the 200-day EMA would support a move to the trend line and the $0.66162 resistance level.

Market risk sentiment and reaction to the Australian PMIs will influence buyer demand for the Aussie dollar.

However, a drop below the $0.65 handle would bring the $0.64900 support level into play.

A 14-period Daily RSI reading of 61.40 suggests a break above the trend line before entering overbought territory (typically above 70 on the RSI scale).

4-Hourly Chart

The AUD/USD remains above the 50-day and 200-day EMAs, sending bullish price signals.

An AUD/USD move through $0.65500 would give the bull a run at the trend line.

However, a fall below the $0.65220 handle would bring the 50-day EMA and the $0.64900 support level into play.

The 14-period 4-Hourly RSI at 55.05 suggests an AUD/USD move to the trend line before entering overbought territory.