AUD to USD Forecast: PMI Numbers and US Jobs Report to Dictate Pre-RBA Trends

Highlights

• The AUD/USD gained 0.63% on Thursday and ended the session at $0.64337.
• On Friday, services PMI numbers from Australia and China will draw early investor interest.
• The US Jobs Report and ISM Services PMI could close the door on the Fed rate hike cycle.

Thursday Overview of the AUD/USD

The AUD/USD gained 0.63% on Thursday. Following a 0.89% rally on Wednesday, the Aussie dollar ended the day at $0.64337. The Aussie dollar fell to a low of $0.63867 before striking a session high of $0.64559.

Service Sector PMIs and the RBA in Focus

On Friday, the finalized Australian Judo Bank Services PMI was in focus early in the session. In October, the Services PMI fell from 51.8 to 47.9 vs. a preliminary 47.6.

The Australian services sector contributes over 60 to the economy and is the main contributor to inflation. With the RBA interest rate decision on Tuesday, the contraction across the services sector could signal softer inflation.

According to the ABS, the annual services inflation rate softened from 6.3% to 5.8% in September vs. a manufacturing inflation rate of 4.9%.

From elsewhere, the China Caixin Services PMI will also influence the appetite for the Aussie dollar. China accounts for one-third of Australian exports. Australia has a trade-to-GDP ratio of over 50%. A deteriorating macroeconomic environment in China impacts demand, the Australian economy, and the Aussie dollar.

Economists forecast the Caixin Services PMI to increase from 50.2 to 50.4 in October.

US Jobs Report and Services in the Spotlight

On Friday, the all-important US Jobs Report will warrant investor attention. Recent economic indicators signaled cracks in the US labor market. On Wednesday, Fed Chair Powell discussed the need for softer labor market conditions to restore price stability. Easing wage growth and a modest increase in nonfarm payrolls may rein in bets on the Fed lifting interest rates higher.

Tighter labor market conditions support wage growth, fueling consumption and demand-driven inflation. Higher interest rates impact borrowing costs, reducing disposable income. A downward trend in disposable income affects consumer spending and eases demand-driven inflation.

While the Job Report is pivotal, the US ISM Services PMI will also move the dial. The US services sector contributes over 70% to the US economy. Weaker service sector activity or an unexpected contraction could fuel fears of a hard landing.

Economists forecast the Services PMI to fall from 53.6 to 53.0 in October.

Short-Term Forecast

The US Jobs Report remains the final hurdle for the AUD/USD before the RBA interest rate decision on November 7, 2023. A softer US labor market and expectations of a hawkish RBA could tilt monetary policy divergence toward the Aussie dollar. The markets are betting on the RBA raising the cash rate to 4.35% while expecting the Fed to end its rate hike cycle.

AUD/USD Price Action

Daily Chart

The AUD/USD sat above the 50-day EMA while remaining below the 200-day EMA, sending bullish near-term but bearish longer-term price signals.

An AUD/USD hold above the 50-day EMA could support a break above the $0.64900 resistance level to target the $0.65 handle.

Services PMIs from China and the US and the US Jobs Report will be the focal points.

However, an AUD/USD fall through the 50-day EMA and the $0.63854 support level would bring the $0.62749 support level into play.

A 14-period Daily RSI reading of 57.70 suggests a move to the $0.64900 resistance level before entering overbought territory (typically above 70 on the RSI scale).

4-Hourly Chart

The AUD/USD remains above the 50-day and 200-day EMAs, affirming bullish price signals.

A break above the Thursday high of $0.64559 would support a move to the $0.64900 resistance level.

However, a drop below the 50-day EMA and the $0.63854 support level would give the bears a run at $0.63500.

The 14-period 4-Hourly RSI at 57.77 suggests an AUD/USD move to the $0.64900 resistance level before entering overbought territory.