AUD to USD Forecast: Chinese Economy Spotlight and Fed Rate Cuts in Focus

Friday Overview of the AUD/USD

The AUD/USD slid by 0.86% on Friday. Following a 0.25% loss on Thursday, the Australian dollar ended the session at $0.65133. The Australian dollar rose to a high of $0.65768 before falling to a low of $0.65101.

China Remains a Focal Point for the Aussie Dollar

This week, the Chinese real estate sector will put the Chinese economy in the spotlight. Country Garden Services Hold Co Ltd (2007) will release Q4 earnings on Thursday. While earnings typically have a limited influence on forex markets, investor sentiment regarding the Chinese real estate sector and iron ore price trends could impact the Aussie dollar.

The influence of the Chinese economy on the Aussie dollar remains significant. China accounts for one-third of Australian exports. Australia has a trade-to-GDP ratio of over 50%, with 20% of the workforce in trade-related jobs.

In February, the IMF published a piece on the Chinese real estate sector, highlighting the significance of the real estate sector to the economy. A deteriorating Chinese economy could impact demand and trade terms with Australia.

While China remains a focal point, economic indicators from Australia will also impact buyer demand for the Aussie dollar.

There are no economic indicators to consider on Monday, but consumer confidence, inflation, and retail sales figures could influence the RBA rate path. Consumer confidence numbers are out on Tuesday, with inflation and retail sales in focus on Wednesday and Thursday, respectively.

Chicago and Dallas Fed Numbers, the Housing Sector, and the Fed

On Monday, the Chicago Fed National Activity Index and Dallas Fed Manufacturing Index will be in focus.

With the Fed continuing to signal three rate cuts for 2024, the immediate interest is on the US economy. Hopes of a soft landing support the US dollar at current levels. However, signs of a deterioration in the macroeconomic environment could impact buyer demand for the Greenback.

Economists forecast the Chicago Fed National Activity Index to fall by 0.9% in February. The Index declined by 0.3% in January. However, economists expect the Dallas Fed Manufacturing Index to increase from -11.3 to -8.0 in March.

The US housing sector will also be in focus. Economists consider the housing sector a litmus test for the US economy. Improving housing market conditions could fuel consumer confidence and spending. Upward trends in consumer spending could contribute to demand-driven inflation and a more hawkish Fed rate path.

Economists forecast new home sales to increase by 3.0% in February after rising by 1.5% in January.

Beyond the numbers, FOMC member speeches could move the dial. FOMC members Raphael Bostic and Lisa Cook are on the calendar to speak. Less dovish views on the Fed rate path than in the FOMC Economic Projections could move the dial.

Short-Term Forecast

Near-term AUD/USD trends will likely hinge on the Australian and US inflation figures. Hotter-than-expected inflation numbers from Australia could put an RBA rate hike back on the table. However, a pickup in US inflationary pressures could impact the Fed rate path and tilt monetary policy divergence toward the US dollar.

AUD/USD Price Action

Daily Chart

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

An Aussie dollar return to the 50-day EMA could give the bulls a run at the $0.65760 resistance level and the 200-day EMA.

The Chinese economy and the US economic calendar warrant investor attention.

Conversely, an AUD/USD fall below the $0.65 level could signal a drop to the $0.64582 support level.

Considering the RSI indicator, a 14-period Daily RSI reading of 43.68 indicates an AUD/USD fall below the $0.64582 support level before entering oversold territory.