AUD to USD Forecast: China PMIs and US Inflation to Dictate Thursday Trends

Highlights

• The AUD/USD declined by 0.48% on Wednesday, ending the session at $0.66163.
• China’s economic woes, US GDP numbers, and mixed signals from the Fed left the Aussie in negative territory on Wednesday.
• On Thursday, China PMIs and US inflation are the focal points.

Wednesday Overview of the AUD/USD

The AUD/USD declined by 0.48% on Wednesday. After a 0.63% rally on Tuesday, the Aussie dollar ended the day at $0.66163. The Aussie dollar rose to a high of $0.66764 before falling to a low of $0.66056.

Australian Housing Sector and China PMIs in Focus

On Thursday, Australian housing sector data will draw in investor interest. Building permits and housing credit numbers for October could reflect the effects of RBA rate hikes on demand.

A deteriorating housing sector could impact consumer confidence and spending. A downward trend in spending would ease demand-driven inflation but also affect the economy. Australian private consumption contributes over 50% to the economy.

While the housing sector numbers will draw interest, China’s private sector PMI numbers could prove pivotal. NBS Non-Manufacturing and Manufacturing PMIs will warrant investor attention. An unexpected fall in the Manufacturing PMI could affect market risk sentiment.

Economists forecast the Chinese Non-Manufacturing PMI to increase from 50.6 to 51.5 in November. Significantly, economists expect the Manufacturing PMI to increase from 49.5 to 49.7.

Weaker-than-expected PMIs could affect buyer demand for the Aussie dollar. China accounts for one-third of Australian exports. Weaker demand would impact the Australian economy and the Aussie dollar. Australia has a trade-to-GDP ratio above 50%, leaving the economy susceptible to subdued demand from China.

US Inflation in the Spotlight

On Thursday, investors will turn their attention to US inflation figures. Fed speakers delivered mixed signals in recent speeches. In Q3, the US economy performed better than expected. Hotter-than-expected inflation numbers could pour water on Fed rate cut bets.

Economists forecast the Core PCE Price Index to increase by 3.5% year-over-year in October. The Index was up 3.7% in September. With the focus on inflation and demand, personal spending and income numbers also need consideration.

Less marked increases in spending and income could signal a weaker outlook on consumer spending. Subdued consumer spending would ease demand-driven inflation and the need for a hawkish Fed rate path.

Beyond the numbers, Fed speakers also need consideration. Fed Vice Chair John Williams is on the calendar to speak. Reaction to the inflation numbers would move the dial.

Short-Term Forecast

Near-term AUD/USD trends hinge on the US inflation numbers. A robust US economy and hotter-than-expected US economic indicators could fuel buyer demand for the US dollar. However, softer-than-expected inflation numbers would support bets on a Fed rate cut and an Aussie dollar return to $0.67.

AUD/USD Price Action

Daily Chart

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

An AUD/USD move to the Wednesday high of $0.66764 would give the bulls a run at the $0.67 handle.

China PMIs and US inflation are the focal points on Thursday.

A break below the $0.66162 support level would bring the trend line and the 200-day EMA into play.

A 14-period Daily RSI reading of 65.16 suggests an AUD/USD move to the Wednesday high before entering overbought territory (typically above 70 on the RSI scale).

4-Hourly Chart

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

An AUD/USD return to the Thursday high of $0.66764 would bring the $0.67286 resistance level into view.

However, a fall through the $0.66162 support level would support a drop to the trend line and the 200-day EMA.

The 14-period 4-Hourly RSI at 56.77 suggests an AUD/USD return to the Wednesday high before entering overbought territory.