AUD to USD Forecast: Balancing China’s Economic Indicators with Fed Speculations

Highlights

• The AUD/USD experienced a significant drop of 1.56% on Thursday, closing at $0.63138.
• Friday’s agenda: China’s inflation and trade data will kickstart economic discussions.
• US consumer sentiment also takes center stage after the surprising US CPI report numbers.

Thursday Overview

On Thursday, the AUD/USD tumbled by 1.56%. Following a 0.28% loss on Wednesday, the Aussie dollar ended the day at $0.63138. The Aussie dollar rose to a high of $0.64310 before falling to a low of $0.63071.

China Inflation and Trade Data in the Spotlight

On Friday, inflation figures from China will kickstart the day. While the annual inflation rate will need consideration, producer prices will likely impact market risk sentiment more. A less marked decline in producer prices may signal an improving demand environment.

Economists forecast producer prices to fall by 2.4% year-over-year in September vs -3% in August.

An improving demand environment is bullish for the Aussie dollar.

China accounts for one-third of Australian exports. With an Australian trade-to-GDP ratio of over 50%, increased demand from China supports the Australian economy, the Aussie dollar, and the labor market.

Later in the Asian session, trade data from China will warrant consideration. Economists forecast the US dollar trade surplus to widen from $68.36 billion to $70.00 billion. However, import and export figures will likely be the focal points. Less marked year-over-year declines in imports and exports would signal a pickup in economic activity.

Michigan Consumer Sentiment and the Fed in Focus

After the hotter-than-expected US CPI Report, the market focus will shift to consumer sentiment. Economists forecast the Michigan Consumer Sentiment Index to slip from 68.1 to 67.2 in October. Better-than-forecasted numbers will likely support demand for the US dollar.

A pickup in consumer confidence would signal an increase in consumer spending. Consumer spending fuels demand-driven inflationary pressures, increasing the need for rate hikes. Higher interest rates affect borrowing costs, leading to firms cutting jobs and wages to maintain profit margins. An uncertain labor market forces consumers to curb spending, easing demand-driven inflationary pressures.

With the US CPI Report reigniting bets on a Fed rate hike, FOMC member speeches need monitoring. Hawkish comments relating to the CPI Report and interest rates will pressure the AUD/USD pair.

Short-Term Forecast

Inflation and trade data from China will dictate the direction of the AUD/USD this morning. An improving macroeconomic environment would cushion the impact of bets on a more hawkish Fed interest rate path.

AUD/USD Price Action

Daily Chart

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

A break below the trend line would support a move to the $0.62749 support level. Weaker-than-expected trade data from China would bring sub-$0.63 into play.

However, upbeat trade data from China and weaker-than-expected US consumer sentiment would support a move to the $0.63854 resistance level.

A 14-period Daily RSI reading of 39.60 supports an AUD/USD break below the trend line before entering oversold territory (typically below 30 on the RSI scale).

4-Hourly Chart

The AUD/USD sits below the 50-day and 200-day EMAs, reaffirming bearish price signals.

A return to $0.63500 would support a move to the $0.63854 resistance level and 50-day EMA. Selling pressure will likely intensify at $0.63840. The 50-day EMA is confluent with the $0.63854 resistance level.

However, a fall through the trend line would bring the $0.62749 support level into play.

The 14-period 4-Hourly RSI at 32.29 supports an AUD/USD fall to $0.63 before entering oversold territory.