AUD to USD Forecast: China Industrial Profit Numbers To Set the Tone

Highlights

• The AUD/USD rose by 0.36% on Friday, ending the session at $0.65794.
• On Monday, industrial profit numbers from China will be in focus.
• The US economic calendar will also need consideration later in the session.

Monday Overview of the AUD/USD

The AUD/USD rose by 0.36% on Friday. Following a 0.21% gain on Thursday, the Aussie dollar ended the day at $0.65794. The Aussie dollar fell to a low of $0.65499 before rising to a high of $0.65910.

China Industrial Profits and Beijing in Focus

On Monday, industrial profit numbers from China will influence the appetite for the Aussie dollar. Investors will want to see industrial profits pick up for the third consecutive month in October.

An improving Chinese macroeconomic environment would be a boon for the Australian dollar. China accounts for one-third of Australian imports. With a trade-to-GDP ratio above 50%, increased demand from China would support the economy and the Aussie dollar. Notably, 20% of the Australian labor market is trade-related.

Increased demand would support tighter labor market conditions and wage growth and boost consumer spending.

Economists forecast industrial profits to decline by 8% year-over-year (year-to-date) vs. a 9% decline in September. Weaker-than-expected numbers could raise concerns about the effectiveness of stimulus measures from Beijing. Significantly, weaker numbers could also pressure Beijing to deliver more stimulus to bolster the economy.

US New Home Sales and Dallas Fed Manufacturing in Focus

Later in the Monday session, US new home sales and Dallas Fed Manufacturing Index figures will draw investor interest. The US housing sector is a barometer for the US economy.

Weak demand for homes could affect house prices and consumer confidence. Waning consumer confidence would signal a weaker consumer spending outlook. A downward trend in spending could adversely affect the economy. US private consumption contributes over 60% to the economy.

Economists forecast new home sales to fall by 4% in October after surging 12.3% in September. Investors should focus on identifying trends rather than reacting to a single monthly report in isolation.

Dallas Fed Manufacturing Index numbers for November also need consideration. The US manufacturing sector contributes less than 30% to the economy. However, cracks in the US economy could raise bets on a May Fed rate hike to avoid a hard landing.

Economists forecast the Dallas Fed Manufacturing Index to increase from -19.2 to -17.0.

Short-Term Forecast

Near-term AUD/USD trends will hinge on US inflation, Fed Chair Powell, and economic indicators from China. Softer US inflation could support a May Fed rate cut while the RBA considers more policy tightening. A pickup in economic activity in China would also support demand for the Aussie dollar.

AUD/USD Price Action

Daily Chart

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

An AUD/USD break above the trend line would support a move to the $0.66162 resistance level.

Chinese industrial profits and the US economic calendar are the focal points for the Monday session.

However, a drop below the 200-day EMA would bring the $0.64900 support level into play.

A 14-period Daily RSI reading of 64.43 suggests a break above the trend line before entering overbought territory (typically above 70 on the RSI scale).

4-Hourly Chart

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

An AUD/USD move through the trend line would bring the $0.66162 resistance level resistance level into play.

However, a drop below the $0.65220 handle would support a fall to the 50-day EMA. A break below the 50-day EMA would give the bears a run at the $0.64900 support level.

The 14-period 4-Hourly RSI at 62.15 suggests an AUD/USD move through the trend line before entering overbought territory.