AUD to USD Forecast: China Inflation and the RBA Hawks

Highlights

• The AUD/USD declined by 0.05% on Wednesday, closing the session at $0.65199.
• On Thursday, inflation numbers from China warrant investor attention.
• Later in the session, US jobless claims and Fed speakers will also need consideration.

Wednesday Overview of the AUD/USD

The AUD/USD declined by 0.05% on Wednesday. Following a 0.62% gain on Tuesday, the Australian dollar ended the session at $0.65199. The Australian dollar rose to a high of $0.65402 before falling to a low of $0.65155.

China Inflation in Focus

On Thursday, inflation numbers from China warrant investor attention.

Economists forecast consumer prices to fall by 0.5% year-over-year in January after declining by 0.3% in December. However, economists expect consumer prices to increase by 0.4% month-on-month after rising by 0.1% in December. Significantly, economists predict producer prices to decline by 2.6% year-over-year compared to 2.7% in December.

Weaker-than-expected numbers could fuel concerns about demand and the Chinese economy.

China accounts for one-third of Australian exports. With a trade-to-GDP ratio above 50%, weak demand could impact the Australian economy and the Aussie dollar.

On Tuesday, RBA Governor Michele Bullock highlighted the influence of the Chinese economy on the Australian economy. The RBA Governor said the latest RBA growth forecasts considered weakness in the Chinese economy.

US Economic Calendar: The US Labor Market and the Fed in Focus

On Thursday, US jobless claims will garner investor interest. Economists forecast initial jobless claims to fall from 224k to 220k in the week ending February 3.

Better-than-expected numbers could influence bets on a May Fed rate cut. Tighter labor market conditions could support wage growth and increase disposable income. An increase in disposable income could fuel consumer spending and demand-driven inflation.

A higher-for-longer Fed rate path could reduce disposable income, curbing consumer spending.

However, investors must also consider FOMC member speeches. FOMC voting member Thomas Barkin is on the calendar to speak. Forward guidance on the Fed rate path would move the dial. On Wednesday, Barkin called for patience on cutting interest rates.

Short-Term Forecast

Short-term trends in AUD/USD remain hinged on central bank commentary and China. Weak economic indicators from China and hawkish Fed speeches could tilt monetary policy divergence toward the US dollar.

AUD/USD Price Action

Daily Chart

The AUD/USD sat below the 50-day and 200-day EMAs, affirming bearish price signals. Significantly, the 50-day EMA converged on the 200-day EMA. A bearish cross would confirm the bearish near-term price trend.

An AUD/USD move to the $0.65500 handle would give the bulls a run at the EMAs and the $0.66162 resistance level.

Central bank speeches, stimulus chatter from Beijing, inflation numbers from China, and US data need consideration.

However, a fall through the $0.64900 support level would bring the trend line into play.

A 14-period Daily RSI reading of 37.93 indicates an AUD/USD fall below the $0.64900 support level before entering oversold territory.

4-Hourly Chart

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

An AUD/USD breakout from the 50-day EMA would give the bulls a run at the 200-day EMA and the $0.66162 resistance level.

However, a break below the $0.64900 support level would support a fall toward the trend line.

The 14-period 4-Hourly RSI at 46.96 indicates an AUD/USD break below the trend line before entering oversold territory.