AUD to USD Forecast: China’s Influence, US Inflation Pressure RBA Outlook

Tuesday Overview of the AUD/USD

The AUD/USD declined by 0.11% on Tuesday. Following a 0.19% loss on Monday, the Australian dollar ended the session at $0.66062. The Australian dollar rose to a high of $0.66388 before falling to a low of $0.65843.

New Yuan Loan Figures and Stimulus Chatter from Beijing

On Wednesday, the Chinese economy will be in the spotlight. After inflation numbers from the weekend, investors will likely consider leading indicators of demand. New Yuan loan figures would reflect the appetite for credit and likely demand trends.

Economists forecast new Yuan loans to increase by CNY1,500 billion year-on-year in February. In January, new Yuan loans rose by CNY4,920 billion.

Leading indicators from China can influence sentiment toward the Australian economy and the RBA rate path. An improving macroeconomic environment in China could boost demand. China accounts for one-third of Australian exports. Australia has a trade-to-GDP ratio of over 50%, with 20% of the Australian workforce in trade-related jobs.

A tighter labor market could support wage growth and disposable income. Upward trends in disposable income could fuel consumer spending and demand-driven inflation. The net effect could be a higher-for-longer RBA rate path to impact disposable income and curb spending.

In February, RBA Governor Michele Bullock highlighted the influence of the Chinese economy on the RBA rate path. During the RBA Press Conference, Governor Bullock affirmed that RBA staff considered the Chinese economy in its forecasts.

There are no economic indicators from Australia to consider on Wednesday. Market risk sentiment and stimulus chatter from Beijing would need consideration.

US Economic Calendar: Producer Prices and Retail Sales Preamble

On Wednesday, hotter-than-expected US inflation numbers for February will likely resonate. There were no Fed speeches to guide investors on the implications of the February CPI Report. The numbers aligned with recent Fed Chair Powell testimony on Capitol Hill. Powell hoped for Fed rate cuts later in the year.

According to the CME FedWatch Tool, the probability of the Fed leaving rates at 5.50% in May increased from 81.7% to 84.4% on Tuesday. However, investors remained hopeful of a June Fed rate cut. The chances of the Fed leaving rates at 5.50% in June rose from 28.4% to 33.4% on Tuesday.

On Thursday, producer prices and retail sales figures may have more impact. Higher producer prices and a larger-than-expected increase in retail sales could further reduce bets on a June Fed rate cut.

Despite softer wage growth in February, the US labor market remains tight, supporting wage growth and disposable income. Upward disposable income trends could fuel consumer spending and demand-driven inflation.

However, there are no US economic stats or Fed speeches for investors to consider on Wednesday. The FOMC entered the blackout period on Saturday, March 9.

Short-Term Forecast

Near-term AUD/USD trends will hinge on the US retail sales and producer price numbers. Hotter-than-expected reports could affect the buyer appetite for the AUD/USD. Delays to Fed rate cuts may tilt monetary policy divergence toward the US dollar. However, stimulus from China could move the scales.

AUD/USD Price Action

Daily Chart

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

An Aussie dollar breakout from the $0.66162 resistance level would bring the $0.67286 resistance level into play.

Market risk sentiment, economic indicators from China, and stimulus chatter from Beijing need consideration.

However, a break below the 200-day and 50-day EMAs could signal a fall to the $0.64900 support level.

A 14-period Daily RSI reading of 58.64 indicates an AUD/USD move to the $0.67 handle before entering overbought territory.

4-Hourly Chart

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

A break above the $0.66162 resistance level would support a move toward the $0.67286 resistance level.

However, a fall through the 50-day would bring the 200-day EMA and $0.65500 handle into play.

The 14-period 4-Hourly RSI at 55.68 suggests an AUD/USD return to the $0.67 handle before entering overbought territory.