AUD to USD Forecast: PBoC Decision and Middle East Tensions in Focus

Highlights

• The AUD/USD declined by 0.12% on Thursday, ending the session at $0.63287.
• Australian employment numbers and Fed Chair Powell delivered a choppy Thursday session.
• The PBoC, Fed commentary, and news updates from the Middle East will be focal points on Friday.

Thursday Overview

On Thursday, the AUD/USD fell by 0.12%. Following a 0.45% loss from Wednesday, the Aussie dollar ended the day at $0.63287. The Aussie dollar fell to a low of $0.62959 before rising to a high of $0.63566.

Australian Employment Report Leaves the Aussie Under Water

Employment numbers from Thursday left the Aussie dollar in negative territory for the second session. An investor shift to a more hawkish monetary policy outlook was short-lived. A fall in the Australian participation rate wiped out bets on an RBA rate hike.

On Friday, the PBoC will be in the spotlight. Better-than-expected economic indicators from China suggest the PBoC will leave the Loan Prime Rates (LPR) unchanged. An unexpected lowering of the LPRs would give the Aussie dollar a boost. The three and five-year LPRs are at 3.45% and 4.20%, respectively.

China accounts for one-third of Australian exports. Looser PBoC monetary policy fuels demand, benefiting the Australian economy and the Aussie dollar. The Australian trade-to-GDP ratio is above 50%, with more than 20% of Australian jobs being trade-related.

Beyond the economic calendar, investors must monitor news updates from the Middle East. An escalation in the Middle East conflict remains a risk for the Aussie.

FOMC Member Commentary to Dictate US Dollar Demand

After a dovish Fed Chair Powell speech on Thursday, FOMC member commentary will remain a focal point.

FOMC members Patrick Harker and Loretta Mester are on the calendar to speak on Thursday. An alignment with Fed Chair Powell’s outlook on monetary policy and US Treasury yields will likely pressure demand for the US dollar.

In recent speeches, FOMC member Patrick Harker supported holding interest rates. In contrast, Loretta Mester favored a Fed rate hike but spoke before the 10-year US Treasury yield spike. A pivot to a more dovish policy outlook will pressure the appetite for the US dollar.

Short-Term Forecast

Market bets on the Fed ending the monetary policy tightening cycle ease the buying appetite for the US dollar. However, employment figures from Australia have also raised expectations of the RBA standing pat on cash rates, leaving interest rate differentials and market risk sentiment to dictate near-term trends.

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 $0.63 would support a move to the $0.62749 support level and trend line. The buying appetite for the Aussie dollar may intensify at $0.62750. The trend line is confluent with the resistance level.

The PBoC, Fed speeches, and the Middle East conflict will be focal points on Friday.

An AUD/USD move through $0.63500 would support a break above the $0.63854 resistance level to bring the 50-day EMA into play.

A de-escalation in the Middle East would fuel demand for the Aussie dollar.

A 14-period Daily RSI reading of 42.74 suggests an AUD/USD drop below the trend line before entering oversold territory (typically below 30 on the RSI scale).

4-Hourly Chart

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

A breakout from the 50-day EMA would give the bulls a run at the $0.63854 resistance level.

However, a return below the $0.63 handle would support a move to the trend line and the $0.62749 support level.

The 14-period 4-Hourly RSI at 45.79 indicates an AUD/USD break below the trend line before entering oversold territory.