AUD to USD Forecast: China, US Consumer Sentiment, and the Fed in Focus

Highlights

• The AUD/USD gained 0.32% on Thursday, ending the session at $0.65726.
• On Friday, Beijing will be in the spotlight. Recent economic indicators call for a more meaningful stimulus package.
• Later in the session, US consumer sentiment and Fed commentary warrant investor attention.

Thursday Overview of the AUD/USD

The AUD/USD gained 0.32% on Thursday. Partially reversing a 0.49% loss from Wednesday, the Australian dollar ended the session at $0.65726. The Australian dollar fell to a low of $0.65251 before rising to a high of $0.65747.

Australian Labor Market in the Spotlight

On Friday, investors must monitor stimulus chatter from Beijing. Recent economic indicators from China raised expectations for a more meaningful stimulus package to bolster the economy. A convincing stimulus package would support the Australian economy and the Aussie dollar.

China accounts for one-third of Australian exports, and Australia has a trade-to-GDP ratio above 50%. An improving macroeconomic environment would improve trade terms.

Significantly, trade-related jobs account for 20% of the Australian labor market. Improving labor market conditions could support wage growth and increase disposable income. Upward trends in disposable income could fuel consumer spending. Australian private consumption contributes 50% to the Australian economy.

There are no economic indicators from Australia to consider today.

US Economic Calendar: Consumer Sentiment and the Fed

On Friday, consumer sentiment figures for January will draw investor interest. Improving consumer sentiment could signal a pickup in consumer spending. An upward trend in consumer spending could fuel demand-driven inflation. A pickup in demand-driven inflationary pressures could convince the Fed to delay rate cuts to curb spending.

A higher-for-longer Fed rate path could impact borrowing costs and reduce disposable income. Downward trends in disposable income could affect consumer spending and dampen demand-driven inflationary pressure.

Economists forecast the Michigan Consumer Sentiment Index to increase from 69.7 to 70.0 in January. However, the sub-components, including inflation expectations and employment, also need consideration.

Beyond the numbers, investors must monitor FOMC member commentary. FOMC member Michael Barr is on the calendar to speak.

Short-Term Forecast

Near-term trends for the AUD/USD hinge on China stimulus plans and Fed speakers. A lack of a stimulus package from Beijing and less dovish Fed comments would impact buyer demand for the AUD/USD.

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 into play.

On Friday, China, US consumer sentiment, and the Fed are the focal points.

However, a break below the $0.65000 handle would bring the $0.64900 support level and trend line into play.

A 14-period Daily RSI reading of 37.09 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 remained below the 50-day and 200-day EMAs, affirming bearish near-term price signals.

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

However, a fall through the $0.65000 handle would bring the $0.64900 support level and the trend line into play.

The 14-period 4-Hourly RSI at 42.76 suggests an AUD/USD drop below the $0.65000 handle before entering oversold territory. Buying pressure could intensify at the $0.65000 handle.