AUD to USD Forecast: China Stats, US Retail Sales, and the Fed in Focus

Highlights

• The AUD/USD slid by 1.15% on Tuesday, ending the session at $0.65838.
• Australian consumer sentiment, investor jitters about the Chinese economy, and easing bets on a March Fed rate cut impacted the AUD/USD.
• On Wednesday, the focus will be on the Chinese economy, US retail sales, and the Fed.

Tuesday Overview of the AUD/USD

The AUD/USD slid by 1.15% on Tuesday. Following a 0.31% loss on Monday, the Australian dollar ended the session at $0.65838. The Australian dollar rose to a high of $0.66617 before falling to a low of $0.65760.

Chinese Economy in the Spotlight

On Wednesday, the Chinese economy will be in the spotlight. Weaker-than-expected economic indicators from China could adversely impact the Australian economy. China accounts for one-third of Australian exports. Australia has a trade-to-GDP ratio above 50%, with 20% of the workforce in trade-related jobs.

Economic indicators from China include GDP, industrial production, fixed asset investment, retail sales, and unemployment numbers. Downward trends in the December stats and softer-than-expected Q4 GDP numbers could influence buyer appetite for the Aussie dollar.

However, investors must also consider stimulus chatter from Beijing and geopolitical tensions in the Middle East.

US Retail Sales and the Fed in Focus

On Wednesday, US retail sales will put the Fed in the spotlight. Better-than-expected US retail sales figures could delay Fed rate cuts to Q2 2024. Upward trends in retail sales could fuel demand-driven inflationary pressures. A delay in rate cuts may curb spending and dampen demand-driven inflation.

Economists forecast retail sales to increase by 0.4% in December after rising by 0.3% in November.

Other stats include housing sector-related data and industrial production numbers. These will likely play second fiddle to the retail sales numbers.

Beyond the numbers, investors must consider FOMC member commentary. FOMC members Michele Bowman, Michael Barr, and John Williams are on the calendar to speak.

Reactions to the retail sale numbers and recent inflation reports would move the dial.

Short-Term Forecast

Near-term trends for the AUD/USD hinge on economic data from China, Australian labor market data, US retail sales, and Fed chatter. Softer Australian labor market conditions would support bets on an H2 2024 RBA rate cut. However, a surge in US retail sales and Fed chatter could force the markets to further reduce bets on a March Fed rate cut.

AUD/USD Price Action

Daily Chart

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

An AUD/USD break above the 200-day EMA and $0.66162 resistance level would support a move to the 50-day EMA and the $0.66500 handle.

The focal points include economic data from China, Beijing, US retail sales, Fed speakers, and geopolitics.

However, a drop below the $0.65500 handle would bring the trend line and $0.64900 support level into play. Buying pressure could intensify at $0.64900. The trend line is confluent with the $0.64900 support level.

A 14-period Daily RSI reading of 35.79 indicates an AUD/USD fall through the $0.65 handle before entering oversold territory (typically above 70 on the RSI scale).

4-Hourly Chart

The AUD/USD sat below the 50-day and 200-day EMAs, affirming bearish near-term price signals. Significantly, the 50-day EMA narrowed on the 200-day EMA. A bearish cross would support a fall through the $0.65 handle.

An AUD/USD break above the $0.66162 resistance level would give the bulls a run at the 200-day and 50-day EMAs.

However, a break below the $0.65500 handle would support a fall toward the trend line and $0.64900 support level.

The 14-period 4-Hourly RSI at 25.60 shows the AUD/USD in oversold territory. Buying pressure could intensify at the $0.65500 handle.