AUD to USD Forecast: Market Watch on China’s NPC Updates and US Fed Rate Cut Bets

Monday Overview of the AUD/USD

The AUD/USD declined by 0.22% on Monday. Partially reversing a 0.38% gain from Friday, the Australian dollar ended the session at $0.65078. The Australian dollar rose to a high of $0.65339 before falling to a low of $0.64895.

Investors Ignore Judo Bank Services PMI Numbers from Australia

Early in the Tuesday session, finalized Judo Bank Services PMI numbers had a limited impact on the Aussie dollar. The Judo Bank Services PMI increased from 49.1 to 53.1 in February, up from a preliminary 52.8. Investors awaited economic indicators from China and updates from the National People’s Congress.

China Services and the People’s National Congress

On Tuesday, China will be under the spotlight. The People’s National Congress opens, with investors eying growth forecasts and a fiscal stimulus package. Economists expect a growth forecast of 5% for 2024. A convincing stimulus package would need to accompany the growth forecasts to drive buyer demand for the Aussie dollar.

A fiscal stimulus package could boost demand from China, which accounts for one-third of Australian exports. Australia has a trade-to-GDP ratio above 50%, with 20% of the workforce in trade-related jobs.

While the National People’s Congress will be the focal point, Services PMI numbers from China could also move the dial. Economists forecast the Caixin Services PMI to increase from 52.7 to 53.4 in February.

For the RBA, a pickup in demand from China could boost growth prospects. During the February press conference, RBA Governor Michele Bullock affirmed the growth forecasts considered China’s economic woes. Upward revisions to growth forecasts could delay the timeline for an RBA rate cut.

US Economic Calendar: US Services Sector and the Fed in Focus

On Tuesday, the all-important US ISM Non-Manufacturing PMI will garner investor interest. The services sector accounts for over 70% of the US economy. A pickup in service sector activity could fuel demand-driven inflation and impact bets on a June Fed rate cut.

Economists forecast the ISM Non-Manufacturing PMI to decline from 53.4 to 53.0 in February. Investors must consider the sub-components, including prices and employment. A marked decline in the prices and employment sub-components would raise bets on a June rate cut.

Other stats include US factory orders and the finalized S&P Global PMI numbers. However, these will likely play second fiddle to the ISM survey-based figures.

Nonetheless, investors must track FOMC member speeches. Views on recent economic indicators and the timeline for Fed rate cuts need consideration. FOMC member Michael Barr is on the calendar to speak on Tuesday.

Short-Term Forecast

Near-term AUD/USD trends will hinge on Services PMIs, the National People’s Congress, and Fed chatter. A convincing stimulus package from China could signal an improving demand environment. The net effect could be for the RBA to delay interest rate cuts, tilting monetary policy divergence toward the Aussie dollar.

AUD/USD Price Action

Daily Chart

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

An Aussie dollar return to the $0.65500 handle would bring the 50-day and 200-day EMAs into play. A break above the EMAs would support a move toward the $0.66162 resistance level.

Services PMIs, Fed chatter, and the People’s National Congress need consideration.

However, a drop below the $0.64900 support level would give the bulls a run at the $0.63853 support level.

A 14-period Daily RSI reading of 43.65 indicates an AUD/USD drop to the trend line before entering oversold territory.

4-Hourly Chart

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

An AUD/USD break above the 50-day and 200-day EMAs would support a move toward the $0.66162 resistance level.

However, a fall through the $0.64900 support level would bring the $0.64500 handle into play.

The 14-period 4-Hourly RSI at 45.89 indicates an AUD/USD break below the $0.64500 handle before entering oversold territory.