AUD to USD Forecast: FOMC Member Chatter to Influence a Return to $0.67

Market Risk Sentiment and Signals of Weaker Household Spending

On Wednesday (May 22), market risk sentiment will likely influence buyer appetite for the AUD/USD.

Commodity price trends could prove pivotal as investors consider the current macroeconomic environment and demand outlook.

However, recent Australian economic indicators likely reduced investor bets on an RBA interest rate hike, supporting the retreat from the $0.67 handle. Wage growth slowed in Q1 2024, with the unemployment rate higher in April. Additionally, Consumer confidence unexpectedly dipped in May.

The stats suggested a further pullback in household spending. Downward trends in household spending could dampen demand-driven inflation and support an RBA rate cut.

Nevertheless, the Aussie dollar may hold onto current levels until the next set of inflation figures. Labor market conditions remain tight by historical standards despite the higher unemployment rate. Tight labor market conditions and a pickup in economic activity in China could change the narrative and adjust the RBA interest rate trajectory.

There are no economic indicators from Australia for investors to consider. However, investors should monitor RBA chatter. Views on inflation and the interest rate path could move the dial.

US Economic Calendar: The Fed and Housing Sector in Focus

Early in the Wednesday Asian session, FOMC member speeches need consideration. FOMC members Raphael Bostic, Susan Collins, and Loretta Mester are on the calendar to speak. Views on inflation and the timing of a Fed rate cut could influence buyer appetite for the US dollar.

Later in the Wednesday session, US housing sector data will warrant investor attention. Economists consider the housing sector a leading indicator of the US economy.

A pickup in housing sector activity could support consumer confidence. Upward trends in consumer confidence may fuel consumer spending and demand-driven inflation. The net effect could be a higher-for-longer Fed rate path to raise borrowing costs, curb spending, and dampen demand-driven inflation.

Economists forecast existing home sales to increase by 0.5% in April after tumbling 4.3% in March.

While the housing sector environment can influence consumer confidence, housing services inflation is also a focal point. FOMC member Austan Goolsbee recently raised concerns about the effects of housing services inflation on headline inflation. An increasing housing demand environment could fuel housing services and demand-driven inflationary pressures.

Beyond the numbers, FOMC member commentary also needs consideration. In recent speeches, FOMC members have stuck to the script, calling for a higher-for-longer rate path to return inflation to the target.

Short-Term Forecast

Near-term AUD/USD trends could hinge on the looming Services PMI numbers (Thurs) and central bank chatter. Weaker US services sector activity could fuel investor bets on a September Fed rate cut and tilt monetary policy divergence toward the Aussie dollar.

AUD/USD Price Action

Daily Chart

The AUD/USD hovered comfortably above the 50-day and 200-day EMAs, confirming the bullish price signals. Furthermore, the 50-day EMA crossed through the 200-day EMA, delivering more bullish price signals.

An Aussie dollar break above the $0.67003 resistance level would support a move to the $0.67500 handle. A return to the $0.67500 handle could signal an AUD/USD climb toward the $0.67967 resistance level.

Market risk sentiment, US existing home sales, and FOMC member chatter need consideration.

Conversely, an AUD/USD break below the $0.66500 handle could give the bulls a run at the $0.65760 support level and the EMAs. Buying pressure may intensify at the $0.65760 support level. The EMAs are confluent with the support level.

With a 14-period Daily RSI reading of 60.45, the AUD/USD may return to the $0.67500 handle before entering overbought territory.