AUD to USD Forecast: How US Wage Growth Could Impact Australian Dollar

Highlights

• AUD/USD gained 0.15% on Thursday, reversing a 0.09% decline from Wednesday, ending the day at $0.64843.
• Caixin Manufacturing PMI for August is influential; weaker numbers would redirect investor focus to Beijing for substantial stimulus.
• The US Jobs Report is central; a steady unemployment rate and higher hourly earnings could refuel bets on further Fed rate hikes.

Thursday Overview

On Thursday, the AUD/USD gained 0.15%. Reversing a 0.09% decline from Wednesday., the Aussie Dollar ended the day at $0.64843. The Australian Dollar rose to a high of $0.65078 before falling to a low of $0.64611.

China Manufacturing in the Spotlight

Manufacturing PMI and home loan figures from Australia will draw interest early in the Asian session. However, barring a marked revision to the prelim PMI, we expect home loans to garner more interest.

Economists forecast home loans to decline by 1.0% in July, following a 2.8% slide in June. RBA policy moves to bring inflation to target have impacted the Australian housing sector. Elevated interest rates weigh on demand, leading to a pullback in house prices. Falling house prices affect consumer sentiment and spending.

Softer inflation numbers suggest the RBA may end its monetary policy tightening cycle. Expectations of the RBA to hold rates should limit the impact of weak numbers on the Aussie dollar.

However, the influential Caixin Manufacturing PMI for August will move the dial. Weaker-than-expected numbers would redirect investor focus to Beijing. The markets hope for a more substantial stimulus package to support the ailing economy.

Economists forecast the Caixin Manufacturing PMI to increase from 49.2 to 49.3 in August.

As an exporter of commodities, manufacturing sector activity impacts demand. A weak global demand environment would affect the Australian trade balance, the Aussie Dollar, and the economy. Significantly, weak demand and output from China send negative macroeconomic signals.

US Jobs Report to Decide the Outcome of the September Fed Meeting

The US Jobs Report will take center stage today, with a focus on the unemployment rate and wage growth.

A steady US unemployment rate and hotter-than-expected average hourly earnings could refuel bets on further Fed rate hikes. Tighter labor market conditions fuel wage growth, leading to an increase in disposable income and consumption. An upward trend in consumption delivers demand-driven inflationary pressure.

Economists forecast average hourly earnings to increase by 4.4% year-over-year. Importantly, economists expect the US unemployment rate to hold steady at 3.5%.

Other stats include the ISM Manufacturing and finalized S&P Global Manufacturing PMIs. However, we expect the PMIs to play second fiddle to the US Jobs Report.

Immediate Forecast: Monetary Policy Divergence

Australian inflation figures eased bets on further RBA rate hikes. However, uncertainty remains over Fed policy intentions. The US Jobs Report will give more guidance on what to expect. Wage growth figures and a steady unemployment rate could tip monetary policy divergence toward the Greenback.

AUD/USD Price Action

Daily Chart

On Thursday, the AUD/USD briefly broke through the $0.6490 resistance band before pulling back. The China Caixin Manufacturing PMI must nudge above 50 for the AUD/USD to break resistance at $0.6490. A deeper contraction and bets on an RBA pause on rate hikes would bring sub-$0.6450 into play.

However, the US Jobs Report would need to be hotter-than-expected to give the bears a look at sub-$0.64 and the $0.63854 support level.

An RSI reading of 46.20 leaves the Aussie Dollar with room to fall before entering oversold territory.

4-Hourly Chart

The 4-Hourly Chart continues to send bullish near-term price signals. Despite softer inflation, the AUD/USD remains above the 50-day EMA. However, the China Caixin Manufacturing PMI will impact investor sentiment. A hotter-than-expected PMI would support a breakout from the $0.6490 resistance band. However, the US Jobs Report will be the main driver.

A pickup in wage growth and steady unemployment would bring the 50-day EMA and the $0.63854 support level into view.

Considering the RSI at 55.80 and the hold above the 50-day EMA, the Aussie dollar has room to run before hitting overbought territory. Price action today hinges on the China PMI and US Jobs Report.