AUD to USD Forecast: RBA Inflation Outlook and Hawkish Fed Chatter

RBA Chief Economist Sarah Hunter

RBA Chief Economist Sarah Hunter influenced buyer appetite for the AUD/USD early in the Thursday (May 30) session.

The RBA Chief Economist stated that the RBA agreed with the Australian Treasury forecast on inflation. In May, the Australian Treasury said inflation could return to the RBA target by the end of 2024.

On Wednesday (May 29), the Australian Monthly CPI Indicator likely drew the attention of the RBA. The Aussie inflation rate unexpectedly increased from 3.5% to 3.6%.

Aussie Australian Housing Sector and Housing Services Inflation

Australian housing sector data will attract investor attention later in the Asian session.

Economists forecast building permits to increase by 1.5% in April after a 1.9% rise in March. The housing sector remains a focal point for the RBA. In the May RBA press conference, RBA Governor Michele Bullock discussed the tight Australian real estate sector and upward rent trends. Higher rents could fuel services and push headline inflation higher.

However, upward trends in building supply could ease supply constraints and rental pressures. Downward trends in rent could alleviate inflation contributions from the housing services sector.

Notably, falling rents could increase disposable income, drive consumer spending, and boost the Australian economy. Private consumption contributes over 50% to the Australian economy.

US Economic Calendar: Q4 GDP, Jobless Claims, and the Fed

Later in the session, the US economy will garner investor interest. Revisions to Q1 2024 GDP numbers could influence the Fed rate path. A hotter-than-expected US economy may force the Fed into a more hawkish Fed interest rate trajectory to cool the economy and tame inflation.

According to first estimates, the US economy expanded by 1.3% in Q1 2024 after growing by 3.4% in Q4 2023.

Furthermore, economists expect US initial jobless claims to increase from 215k to 218k in the week ending May 25.

Tight labor market conditions support wage growth and increase disposable income. Upward trends in disposable income could fuel consumer spending and demand-driven inflation. A higher-for-longer Fed rate path could raise borrowing costs and reduce consumer spending. Downward trends in consumer spending could dampen demand-driven inflationary pressures.

Beyond the numbers, Fed Vice Chair John Williams and FOMC member Lorie Logan are on the calendar to speak. Comments regarding inflation, the US economy, and the interest rate trajectory could move the dial.

Short-Term Forecast

Near-term AUD/USD trends could hinge on US labor market data, US inflation numbers, and central bank chatter. Hotter-than-expected US inflation numbers and tight labor market conditions could tilt monetary policy divergence toward the US dollar.

AUD/USD Price Action

Daily Chart

The AUD/USD held well above the 50-day and 200-day EMAs, confirming the bullish price trends.

An Aussie break above the $0.66500 handle would support a move toward the $0.67003 resistance level. A breakout from the $0.67003 resistance level could give the bulls a run at the $0.67500 handle.

Aussie housing sector data, the RBA, and the US economic calendar need consideration.

Conversely, an AUD/USD fall through the $0.66000 handle and 50-day EMA could signal a drop to the 200-day EMA and the $0.65760 support level.

With a 14-period Daily RSI reading of 50.66, the AUD/USD may return to the $0.67500 handle before entering overbought territory.