AUD to USD Forecast: Australian Service Sector Trends vs. US Jobs Data

Bob Mason
Updated: May 2, 2024, 23:38 GMT+00:00

Key Points:

  • On Friday (May 3), finalized Australian Judo Bank Services PMI numbers attracted investor attention.
  • Downward revisions to preliminary service sector PMI numbers are unlikely to ease speculation about an RBA interest rate hike amidst rising input costs.
  • Later in the Friday session, the US Jobs Report and ISM Services PMI will influence investor bets on a September Fed rate cut.
AUD to USD Forecast

In this article:

Australian Services and Housing Sector in Focus

On Friday (May 3), the Australian Judo Bank Services PMI put the AUD/USD in focus early in the session.

The Judo Bank Services PMI declined from 54.4 to 53.6 in April, down from a preliminary 54.2. According to the finalized survey,

  • New business increased at the most marked pace since May 2022.
  • Firms increased employment levels to meet the increase in demand.
  • Input prices trended higher, with labor costs contributing to higher costs.

While the headline PMI declined, the upward trend in new orders, input prices, and employment may draw the attention of the RBA.

The services sector contributes over 60% to the Australian economy. Higher labor costs and tighter labor market conditions could fuel consumer spending and demand-driven inflation.

The RBA could respond with a more hawkish rate path to raise borrowing costs and reduce disposable income. Downward trends in disposable income could force consumers to curb spending, dampening demand-driven inflation.

Later this morning, home loan figures will also need consideration.

Economists forecast home loans to increase by 1.0% in March after rising by 1.6% in February. Home loan trends could reflect consumer sentiment toward the economy and consumer spending trends. An uptick in home loans may signal higher consumer spending. A pickup in consumer spending could influence the RBA interest rate trajectory.

US Economic Calendar: The US Jobs Report and ISM Services PMI

Later in the Friday session, the US Jobs Report and ISM Services PMI will impact investor bets on a September Fed rate cut.

Economists forecast average hourly earnings to increase 4.0% in April year-on-year after rising 4.1% in March. Moreover, economists expect nonfarm payrolls to advance by 243k after a 303k jump in March. Softer-than-expected wage growth figures could refuel investor bets on a September Fed rate cut.

Weaker wage growth trends could reduce disposable income and impact consumer spending. Downward trends in consumer spending could dampen demand-driven inflation and allow the Fed to cut interest rates to ensure price stability.

However, investors should also consider the ISM Services PMI. Economists forecast the ISM Services PMI to increase from 51.4 to 52.0 in April. The services sector accounts for over 70% of the US economy and contributes to inflation. Beyond the headline number, employment, new orders, and input costs warrant attention.

Short-Term Forecast

Near-term AUD/USD trends will hinge on the US Jobs Report and ISM Services PMI. Softer-than-expected wage growth and input prices across the services sector could raise investor bets on a September Fed rate hike. In contrast, recent stats from Australia have fueled speculation about a more hawkish RBA rate path.

AUD/USD Price Action

Daily Chart

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

An Aussie dollar break above the $0.65760 resistance level would bring the $0.66 handle into play. A return to the 0.66 handle could give the bulls a run at the $0.66500 level.

Investors should consider the US Jobs Report and ISM Services PMI.

Conversely, an AUD/USD drop below the 200-day EMA could signal a fall to the 50-day EMA. A fall through the 50-day EMA could give the bears a run at the $0.64582 support level.

With a 14-period Daily RSI reading of 56.65, the AUD/USD may return to the $0.66500 handle before entering overbought territory.

AUD to USD Daily Chart sends bullish price signals.
AUDUSD 030524 Daily Chart

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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