AUD to USD Forecast: China in Focus Pre-Fed Chair Powell and US ADP and ISM Reports

Bob Mason
Updated: Apr 2, 2024, 23:22 GMT+00:00

Key Points:

  • On Wednesday, April 3, the Ai Group Index unexpectedly increased from -14.9 to -5.3, drawing buyers for the Aussie dollar.
  • Later in the morning trading session, service sector PMI numbers from China could give further evidence of the Chinese economy turning the corner.
  • ADP employment change, ISM Services PMI numbers, and Fed chatter could impact the Fed rate path during the US session.
AUD to USD Forecast

China Services in the Spotlight

On Wednesday, the Chinese economy will be in the spotlight again. The China Caixin Services PMI could show if the Chinese economy has turned a corner. Economists forecast the China Caixin Services PMI to increase from 52.5 to 52.7 in March.

A pickup in service sector activity could signal an improving demand environment. An improving demand environment could be a boon for the Australian economy and the Aussie dollar. China accounts for one-third of Australian exports. Australia has a trade-to-GDP ratio of over 50%, with 20% of the labor market in trade-linked jobs.

Earlier in the session, Ai Group data for March garnered investor interest. The more influential Ai Group Industry Index jumped from -14.9 to -5.3. Economists forecast a fall to -17.0. Despite the increase, sales and new orders declined, signaling a weak industry environment.

US Economic Calendar: Labor Market and the Services Sector

On Wednesday, US labor market data and Services PMI numbers could further influence bets on a June Fed rate cut.

After the JOLTs Job Openings Report, a larger-than-expected rise in US employment could sink expectations of a June rate cut. Economists expect the ADP to report a 148k increase in March after rising by 140k in February.

Tight labor market conditions could support wage growth and increase disposable income. Upward trends in disposable income may fuel consumer spending and demand-driven inflation. A higher-for-longer Fed rate path could affect borrowing costs, reducing disposable income. Consumers could curb spending on non-essential items, dampening demand-driven inflation.

While the ADP numbers are influential, investors must consider service sector data. The services sector accounts for over 70% of the US economy. A pickup in service sector activity could also impact the timing of a Fed rate cut. The services sector is the main contributor to demand-driven inflation.

Economists forecast the ISM Services PMI to remain unchanged at 52.6 in March. Investors should also consider the sub-components, including prices, new orders, and employment.

Considering the focus on the US labor market and services sector, comments from FOMC members also require attention. Fed Chair Powell is on the calendar to speak. FOMC members Michelle Bowman, Austan Goolsbee, Michael Barr, and Adriana Kugler will also deliver speeches.

Short-Term Forecast

Near-term AUD/USD trends will hinge on China and US service sector data, US labor market indicators, and Fed speeches. The markets are dialing back bets on an H1 2024 Fed rate cut, tilting monetary policy divergence toward the US dollar. Tighter US labor market conditions and robust US service sector activity could put the RBA in front vis-à-vis the timing of an interest rate cut.

AUD/USD Price Action

Daily Chart

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

If the Aussie dollar breaks out from the 50-day EMA, it could indicate a move towards the $0.65760 resistance level and the 200-day EMA. Selling pressure could intensify at the $0.65760 resistance level. The 200-day EMA is confluent with the resistance level.

A break above the 200-day EMA would bring the $0.66 handle into play.

China and US services, the US labor market, and the Fed warrant consideration.

Conversely, an AUD/USD drop below the $0.65 handle could give the bears a run at the $0.64582 support level.

Given a 14-period Daily RSI reading of 44.92, the AUD/USD might decline below the $0.64582 support level before reaching oversold territory.

AUD to USD Daily Chart sends bearish price signals.
AUDUSD 030424 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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