AUD to USD Forecast: China Inflation Data and Aussie Business Sentiment in Focus

China Inflation and Aussie Business Confidence

On Monday (May 13), inflation figures from China will influence buyer demand for the AUD/USD. The annual inflation rate unexpectedly rose from 0.1% to 0.3% in April, signaling an improving demand environment.

A pickup in demand could support the Australian economy and the Aussie dollar. China accounts for one-third of Australian exports. Australia has a trade-to-GDP ratio exceeding 50%, with 20% of the Australian workforce in trade-related jobs.

However, producer prices were down by 2.5% year-on-year in April after falling 2.8% in March. Economists expected producer prices to decline by 2.3%. Producers adjust prices based on demand. The April numbers signaled an improvement but remained a negative leading indicator for consumer price trends.

Later this morning, the NAB Business Confidence Index also warrants investor attention. Economists forecast the Index to increase from +1 to +2 in April. A pickup in business confidence would signal an improving macroeconomic backdrop, which may increase employment and wage growth.

The sub-components also need consideration amidst RBA concerns over household spending. Employment, labor cost growth, and business condition trends will draw interest.

Higher wages could increase disposable income. Upward trends in disposable income could fuel consumer spending and demand-driven inflation.

US Economic Calendar: Consumer Inflation Expectations and the Fed

Later in the Monday session, consumer inflation expectation numbers will influence buyer demand for the AUD/USD.

Economists forecast consumer inflation expectations to increase from 3.0% to 3.1% in April. Investors will react to the data after market sensitivity to hotter-than-expected Michigan Inflation Expectation numbers from Friday.

Higher-than-expected consumer inflation expectations would align with recent Fed concerns about monetary policy and inflation.

Beyond the numbers, investors should track FOMC member commentary. FOMC members Loretta Mester and Philip Jefferson are on the calendar to speak. Views on inflation and interest rates could move the dial.

Short-Term Forecast

Near-term AUD/USD trends will hinge on US inflation numbers and Aussie labor market data. Softer-than-expected US inflation numbers and better-than-expected Aussie labor market data could tilt monetary policy divergence toward the Aussie dollar. However, investors should also consider Fed and RBA commentary throughout the week.

AUD/USD Price Action

Daily Chart

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

An Aussie dollar return to the $0.66500 handle would give the bulls a run at the $0.67003 resistance level. A break above the $0.67003 resistance level would support a move toward the $0.67500 handle.

Aussie business confidence, US consumer inflation expectations, and Fed speeches need consideration.

Conversely, an AUD/USD fall through the $0.65760 support level and 200-day EMA would bring the 50-day EMA into play.

With a 14-period Daily RSI reading of 56.95, the AUD/USD could move to the $0.67003 resistance level before entering overbought territory.