AUD to USD Forecast: China Inflation Numbers Provide Pre-Powell Comfort

Highlights

• The AUD/USD fell by 0.54% on Wednesday, ending the session at $0.64016.
• On Thursday, inflation numbers from China eased fears of a slump in demand.
• Later today, Fed Chair Jerome Powell will be in the spotlight.

Wednesday Overview of the AUD/USD

The AUD/USD fell by 0.54% on Wednesday. Following a 0.81% loss on Tuesday, the Aussie dollar ended the day at $0.64016. The Aussie dollar rose to a high of $0.64494 before falling to a low of $0.63972.

China Inflation in the Spotlight

On Thursday, inflation figures from China drew investor attention. On Tuesday, the RBA delivered a dovish 25-basis point interest rate hike in response to a pickup in inflationary pressure. With inflation remaining the hot topic, the inflation figures from China will likely influence sentiment toward the Chinese economy and global demand.

Consumer prices declined by 0.2% year-over-year in October after stalling in September. Economists forecast consumer prices to fall by 0.2%.

Falling consumer prices could signal lackluster demand and weak consumption. However, producer prices also needed consideration. Producer prices fell by 2.6% year-over-year in October after falling by 2.7% in September. Economists forecast producer prices to decline by 2.7%.

A less marked than expected decline in producer prices eased fears of a weakening demand environment. Firms cut prices to win contracts in a weak demand environment.

Notably, China accounts for one-third of Australian exports. Australia has a trade-to-GDP ratio above 50%. Weak demand from China would impact the Australian economy and the Aussie Dollar. Australian trade-related jobs make up 20% of the workforce. Weak demand would also affect the labor market and private consumption. Australian private consumption contributes over 50% to the Australian economy.

The Australian dollar fell to a low of $0.64013 before rising to a high of $0.64151 upon the release of the inflation numbers.

Jobless Claims and Fed Chair Powell in the Spotlight

On Thursday, US jobless claims will be in focus. A spike in jobless claims could further ease bets on a Fed rate hike and fuel expectations of a June Fed rate cut.

Economists forecast initial jobless claims to increase from 117k to 118k in the week ending November 4. Softer labor market conditions could ease wage growth and impact consumer confidence.

Labor market uncertainty and a downward trend in disposable income may force consumers to curb spending. A downward trend in spending would ease demand-driven inflation.

Beyond the economic indicators, Fed Chair Powell and FOMC member speeches also need consideration. On Wednesday, Fed Chair Powell avoided monetary policy. However, views on the labor market, inflation, and the Fed rate path need consideration.

Since the FOMC press conference, unit labor costs and the US Jobs Report reflected a weakening US labor market. An affirmation that labor market conditions have softened sufficiently to end the Fed rate hike cycle would drive demand for the AUD/USD.

FOMC non-voting members Thomas Barkin and Raphael Bostic will also deliver speeches.

Short-Term Forecast

Near-term trends hinge on Fed forward guidance and the US labor market. A weakening US labor market would support bets on an end to the rate hike cycle and a June 2024 Fed rate cut. A dovish Fed could counter the dovish RBA rate hike and support an AUD/USD move toward $0.66.

AUD/USD Price Action

Daily Chart

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

A break above the 50-day EMA would support a move to the $0.64900 resistance level.

Inflation figures from China and Fed speeches will be the focal points on Thursday.

A hawkish Fed Chair Powell and weaker-than-expected inflation numbers would support a drop below the $0.63854 support level.

A 14-period Daily RSI reading of 51.39 suggests a move through the $0.64900 resistance level before entering overbought territory (typically above 70 on the RSI scale).

4-Hourly Chart

The AUD/USD sits below the 50-day EMA while holding above the 200-day EMA, sending bearish near-term but bullish longer-term price signals.

A break above the 50-day EMA would support a move to the $0.64900 resistance level.

However, a drop below the 200-day EMA and the $0.63854 support level would bring sub-$0.63 into play.

The 14-period 4-Hourly RSI at 40.31 indicates an AUD/USD fall through the $0.63854 support level before entering oversold territory.