AUD to USD Forecast: Market Risk, RBA Trajectory, and China Stimulus Impact

The RBA and China Stimulus

On Friday, market risk sentiment could influence the buyer appetite for the AUD/USD. A rising threat of retaliation against the Saturday attack on Israel would impact demand for riskier assets and the Aussie dollar.

However, the RBA interest rate trajectory and the Chinese economy remain investor focal points. Sticky Australian inflationary pressures dampened bets on an RBA rate cut before September 2024. Labor market data for March signaled a weaker labor market environment on Thursday. Employment unexpectedly fell by 6.6k, with the unemployment rate rising from 3.7% to 3.8%.

A weaker labor market environment could impact wage growth and disposable income. Downward trends in disposable income could curb consumer spending and dampen demand-driven inflation.

Nevertheless, investors must wait until April 24 for Q1 inflation numbers that could affect the RBA rate path.

There are no economic indicators from Australia to consider on Friday. A lack of data could put more focus on China. While Q1 GDP numbers beat expectations, the IMF forecasts the economy to see growth slow from 5.2% to 4.6% in 2024. A weakening Chinese economy would impact the Aussie dollar and influence the RBA interest rate path.

US Economic Calendar: Fed Speakers in Focus

On Friday, FOMC member speeches will warrant investor attention. FOMC member Austan Goolsbee is on the calendar to speak. FOMC member support to delay interest rate cuts until the fourth quarter could drive buyer demand for the US dollar.

In April 2024, the Chicago Fed President singled out the housing services sector as the main risk to taming inflation.

US economic indicators have forced the markets to reduce bets on multiple 2024 Fed interest rate cuts. The markets are now looking to a September Fed rate cut and possibly one additional interest rate cut. More hawkish forward guidance could further influence AUD/USD price trends.

According to the CME FedWatch Tool, the probability of the Fed leaving interest rates at 5.5% in September stood at 35.6% (April 18). On April 11, there was a 31.0% chance of the Fed holding interest rates at 5.5%.

Short-Term Forecast

Near-term AUD/USD trends will hinge on FOMC member commentary, Australian consumer price trends, and stimulus measures from Beijing. Softer Australian inflation numbers and hawkish Fed chatter would tilt monetary policy divergence toward the US dollar. However, a fiscal stimulus package from Beijing could counter the effects of softer inflation on the RBA rate path.

AUD/USD Price Action

Daily Chart

The AUD/USD remained comfortably below the 50-day and 200-day EMAs, confirming the bearish price trends.

An Aussie dollar move through the $0.64582 resistance level would give the bulls a run at the $0.65 handle. A break above the $0.65 handle would bring the 50-day EMA into play.

China, geopolitical risk, and Fed speakers need consideration.

Conversely, an AUD/USD break below the $0.64 handle could give the bears a run at the $0.62713 support level.

Given a 14-period Daily RSI reading of 37.99, the AUD/USD could drop to the $0.63500 handle before entering oversold territory.