AUD to USD Forecast: Return to $0.65 Hinged on Employment Data

Highlights

• The AUD/USD tumbled 1.18% on Tuesday, ending the session at $0.64532.
• Hotter-than-expected US inflation numbers erased bets on March and May Fed rate hikes, tilting monetary policy divergence toward the US dollar.
• On Wednesday, Fed and RBA commentary needs consideration.

Tuesday Overview of the AUD/USD

The AUD/USD tumbled 1.18% on Tuesday. Reversing a 0.12% gain from Monday, the Australian dollar ended the session at $0.64532. The Australian dollar rose to a high of $0.65371 before falling to a Tuesday low of $0.64426.

Australian Labor Market Report Preview

Recent Australian inflation numbers supported investor bets on an H1 2024 RBA rate cut.

However, RBA Governor Michele Bullock left an RBA rate hike on the table at the recent RBA Press Conference.

Consumer confidence numbers on Tuesday unexpectedly improved in February, signaling a pickup in consumer spending. Labor market conditions and household spending remain considerations for the RBA. The RBA is concerned about inflation becoming embedded in the economy.

On Thursday, Australian labor market figures for January warrant investor attention. Softer labor market conditions could impact wage growth and reduce disposable income. A downward trend in disposable income could curb consumer spending and dampen demand-driven inflation.

Economists forecast the Australian unemployment rate to increase from 3.9% to 4.0%. However, investors must also consider the participation rate and employment change figures. Economists expect the participation rate to rise from 66.8% to 66.9% and employment to increase by 30k.

A higher-than-expected unemployment rate could raise bets on an RBA rate cut.

There are no Australian economic indicators to consider on Wednesday. However, RBA chatter and market risk sentiment could move the dial as investors consider the latest US CPI Report.

US Economic Calendar: US Fed Speakers and the AUD to USD

On Wednesday, US Fed speakers will be in focus. Investors need to monitor reactions to the US CPI Report. The hotter-than-expected inflation numbers reduced investor bets on Fed rate cuts in March and May.

FOMC members signaling the status quo on interest rates until H2 2024 could impact buyer demand for the AUD/USD.

FOMC member Austan Goolsbee is on the calendar to speak on Wednesday. Considering recent warnings from Fed speakers about needing patience vis-à-vis rate cuts, the AUD/USD may see increased sensitivity to Fed chatter.

According to the CME FedWatch Tool, the probability of a March Fed fell from 16.0% to 8.5% on Tuesday. The chances of a May Fed rate slid from 52.2% to 35.2%.

AUD to USD: Short-Term Forecast

Short-term trends in AUD/USD will hinge on Australian labor market data and central bank commentary. Softer-than-expected Australian labor market data and hawkish Fed chatter could tilt monetary policy divergence toward the US dollar.

AUD/USD Price Action

Daily Chart

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

A break above the $0.64900 resistance level would support a move to the $0.65500 handle. An AUD/USD move through the $0.65500 handle would bring the 50-day and 200-day EMAs into play.

On Wednesday, RBA and Fed speakers and market risk sentiment will likely dictate AUD/USD trends.

However, a break below the trend line would give the bears a run at the $0.63854 support level.

A 14-period Daily RSI reading of 33.73 indicates an AUD/USD drop below the trend line before entering oversold territory.

4-Hourly Chart

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

An AUD/USD breakout from the $0.64900 resistance level would give the bulls a run at the 50-day EMA. A move through the 50-day EMA would bring the $0.65500 handle into play.

However, a break below the trend line would support a fall to the $0.63854 support level.

The 14-period 4-Hourly RSI at 29.96 shows the AUD/USD in oversold territory. Buying pressure could intensify at the trend line.