AUD to USD Forecast: Private Sector PMIs and the RBA Rate Path

Australian Private Sector PMIs and the RBA

On Tuesday, preliminary private sector PMI numbers from Australia garnered investor interest.

The Judo Bank Manufacturing PMI increased from 47.3 to 49.9. Moreover, the Services PMI slipped from 54.4 to 54.2. Economists forecasted PMIs of 47.9 and 54.0, respectively.

The Services PMI warranted more attention, accounting for over 60% of the Australian economy.

According to the April Survey,

• New business rose at the most marked pace since May 2022. Firms cited a pickup in foreign new business amidst an improving demand environment.
• Improving market conditions supported the labor market, with employment rising.
• Input price inflation accelerated in April. However, output price inflation increased at a less marked rate. Firms absorbed some of the input cost pressures.
• Confidence amongst service providers eased but remained elevated compared with levels over the past 12 months.

Input cost pressures will likely be of concern for the RBA. The Australian manufacturing sector reported higher input and output price inflation. A resilient services sector and the better-than-expected manufacturing PMI numbers suggested the economy could perform better than the RBA forecasts.

Australian inflation numbers for the first quarter will be in focus on Wednesday. The PMIs and hotter-than-expected inflation numbers could force the RBA to resume rate hike discussions.

US Economic Calendar: US Private Sector PMIs and the Fed Rate Path

Later in the session, US private sector PMIs will also draw investor attention. Economists forecast the S&P Global Services PMI to rise from 51.7 to 51.8 in April. Moreover, economists predict the S&P Global Manufacturing PMI to increase from 51.9 to 52.0.

The S&P Global Services PMI will likely affect the AUD/USD more, accounting for over 70% of the US economy.

Better-than-expected numbers could further reduce investor bets on a September Fed rate hike. The US services sector is also a contributor to inflation. Investors must consider the sub-components, including prices, job creation, and new orders. Higher input and output costs, job creation rates, and new orders would likely influence the Fed rate path.

Chicago Fed President Austan Goolsbee recently highlighted concerns about housing sector services inflation.

Short-Term Forecast

Near-term AUD/USD trends will hinge on the US Services PMI and inflation numbers from Australia (Wed) and the US (Fri). Higher-than-expected Australian inflation numbers could refuel speculation about an RBA interest rate hike.

In contrast, a pickup in service sector activity and sticky inflation could further delay a Fed interest rate cut. A more hawkish RBA could tilt monetary policy divergence toward the Aussie dollar.

AUD/USD Price Action

Daily Chart

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

An Aussie dollar breakout from the $0.64582 resistance level would give the bulls a run at the $0.65 handle. A move to the $0.65 handle could bring the 50-day EMA into play.

US private sector PMIs and shifting Fed and RBA interest rate trajectories need consideration.

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

Given a 14-period Daily RSI reading of 42.68, the AUD/USD could drop to the $0.63500 handle before entering oversold territory.