AUD to USD Forecast: Balancing Chinese Economic Indicators and Fed Sentiment

Friday Overview of the AUD/USD

The AUD/USD declined by 0.32% on Friday. Following a 0.61% slide on Thursday, the Australian dollar ended the session at $0.65595. The Australian dollar rose to a high of $0.65829 before falling to a low of $0.65521.

Economic Indicators from China in the Spotlight

On Monday, the Chinese economy will be in focus. Industrial production, retail sales, fixed asset investment, and unemployment figures warrant investor attention.

Weaker-than-expected numbers could influence the RBA rate path. Weak demand from China could impact the Australian economy. China accounts for one-third of Australian exports. Australia has a trade-to-GDP ratio of over 50%, with 20% of the workforce in trade-related jobs.

Economists forecast industrial production to increase by 5.0% year-on-year from January to February. Industrial production was up 6.8% year-on-year in December. Significantly, economists expect retail sales to rise 5.2% year-on-year (Jan-Feb). Retail sales were up 7.4% year-on-year in December.

However, economists predict the unemployment rate to remain at 5.1%.

Fixed asset investment forecasts are more upbeat. Economists forecast fixed asset investments to rise 3.2% year-on-year (Jan-Feb) after increasing 3.0% in December.

In the February RBA Press Conference, Michele Bullock confirmed that RBA staff considered the Chinese economy in the staff projections. A deteriorating macroeconomic environment in China could further impact growth forecasts. Significantly, weaker numbers could take an RBA rate hike off the table.

US Economic Calendar: NAHB Housing Market Index in Focus

On Monday, the US housing sector will be in the spotlight. Economists consider the housing sector a leading indicator of the US economy. A deteriorating housing sector could impact consumer confidence and spending. Private consumption contributes over 70% to the US economy. A weaker outlook on spending could affect the US economy and refuel fears of a hard landing.

Economists forecast the NAHB Housing Market Index to remain at 48 in March.

While the housing sector data will draw investor interest, the focus remains on the Fed interest rate decision. Recent inflation figures from the US reduced bets on an H1 2024 Fed rate cut. Sentiment toward the FOMC interest rate decision and projections will continue to influence buyer demand for the AUD/USD.

Short-Term Forecast

Near-term AUD/USD trends will hinge on the economic indicators from China, the RBA, and the Fed. Weaker-than-expected numbers from China and a more hawkish Fed could impact buyer demand for the AUD/USD. However, RBA forward guidance also needs consideration on Tuesday.

AUD/USD Price Action

Daily Chart

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

An Aussie dollar break above the 50-day EMA and $0.65760 resistance level would support a move to the 200-day EMA and the $0.66 handle.

Economic data from China and US housing sector numbers warrant investor attention.

Conversely, an AUD/USD fall below the $0.65500 handle could give the bears a run at the $0.64582 support level.

Considering the RSI indicator, a 14-period Daily RSI reading of 48.85 suggests an AUD/USD fall to the $0.64582 support level before entering oversold territory.