AUD to USD Forecast: October Private Sector PMIs in the Spotlight

Highlights

• The AUD/USD gained 0.40% on Monday, ending the session at $0.63351.
• On Tuesday, Australian private sector PMIs and RBA Assistant Governor Michelle Bullock will guide the Aussie dollar.
• Later in the session, US private sector PMIs and updates from the Middle East also need consideration.

Monday Overview

On Monday, the AUD/USD gained 0.40%. Reversing a 0.30% loss from Friday, the Aussie dollar ended the day at $0.63351. The Aussie dollar fell to a low of $0.62889 before rising to a high of $0.63487.

Private Sector PMIs in Focus with an Eye on the Middle East

Prelim Australian private sector PMIs for October will garner investor interest on Tuesday. The figures will give investors an early Q4 view of the Australian economy and the demand environment.

The services sector PMI figures will likely have more influence on the Aussie dollar, accounting for over 60% of the economy. However, investors should consider the subcomponents, including employment, new orders, and prices.

Improving new orders and hiring trends would support wage growth and fuel demand-driven inflationary pressures. A more hawkish RBA interest rate path would raise borrowing costs, impacting disposable income and spending.

Economists forecast the Judo Bank Services PMI to fall from 51.8 to 51.1 in October. Predictions are for the Judo Bank Manufacturing Sector PMI to decline from 48.7 to 48.6.

Later today, the RBA will be in the spotlight, with RBA Assistant Governor Michelle Bullock speaking. After the hawkish RBA Meeting Minutes, references to the weaker labor market numbers, PMIs, and interest rates warrant consideration.

Beyond the economic calendar, the Middle East conflict needs attention. An escalation in the conflict would fuel a flight to the safety of the US dollar.

US Services PMI in the Spotlight

The US services PMI will be in focus on Tuesday. While the markets have written off a November Fed rate hike, the door remains open for a December move.

Hotter-than-expected S&P Global Services PMI numbers may fuel bets on a Fed rate hike before hitting the proverbial brakes. Investors must also consider the sub-components, including employment, new orders, and prices.

While new orders will reflect the demand environment, employment and prices will offer an inflation outlook. Tighter labor market conditions, supported by solid demand, push wages higher. Higher wages fuel consumption and demand-driven inflation. A more hawkish Fed rate path would impact borrowing costs and hiring, lowering disposable income and consumption.

Short-Term Forecast

Near-term AUD/USD trends will hinge on the Australian and US services PMIs. The Fed and the RBA remain poised to hike interest rates if needed. We expect a responsive AUD/USD to divergence in the services sector. However, the Middle East conflict remains a headwind.

AUD/USD Price Action

Daily Chart

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

A drop below the $0.6300 handle would support a move to the $0.62749 support level and the trend line. The RBA, service sector PMIs, and news updates from the Middle East will guide the AUD/USD. Significantly, the trend line is confluent with the support level, which may drive buying demand for the Aussie dollar.

An AUD/USD move through the $0.63500 handle would give the bulls a run at the $0.63854 resistance level and the 50-day EMA.

A de-escalation in the Middle East and better-than-expected Australian PMIs may boost demand for the Aussie dollar.

A 14-period Daily RSI reading of 44.90 suggests an AUD/USD fall below the $0.62749 support level and the trend line before entering oversold territory (typically below 30 on the RSI scale).

4-Hourly Chart

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

A move through the 50-day EMA would give the bulls a run at the $0.63854 resistance level and 200-day EMA.

An AUD/USD fall below the $0.63 handle would support a move to the $0.62749 support level and trend line. Buying pressure may intensify at the resistance level. The trend line is confluent with the resistance level.

The 14-period 4-Hourly RSI at 52.42 indicates an AUD/USD move to the $0.63854 resistance level before entering overbought territory.