AUD to USD Forecast: The PBoC, US Consumer Confidence, and the Fed

Highlights

• The AUD/USD rallied 0.84% on Tuesday, ending the session at $0.67622.
• RBA rate hike discussions and bets on multiple Fed rate cuts fueled buyer demand for the AUD/USD.
• On Wednesday, the PBoC and US consumer confidence are focal points.

Tuesday Overview of the AUD/USD

The AUD/USD rallied 0.84% on Tuesday. Following a 0.10% gain on Monday, the Australian dollar ended the Tuesday session at $0.67622. The Australian dollar fell to a low of $0.67003 before climbing to a high of $0.67746.

PBoC and the Chinese Economy in the Spotlight

On Wednesday, central banks remain the focal point for investors. The PBoC will set loan prime rates for December. Economists expect the PBoC to leave 1-year and 5-year LPRs unchanged at 3.45% and 4.20%, respectively. A surprise move could drive buyer demand for the Aussie dollar.

Policy support would bolster the Chinese economy. China accounts for one-third of Australian exports. Australia has a trade-to-GDP ratio above 50%. Increased demand from China would be a boon for the Australian economy and the Aussie dollar.

20% of the Australian workforce are in trade-related jobs. Tighter labor market conditions would support wage growth and consumer spending. An upward trend in consumer spending could fuel demand-driven inflation and force the RBA to hike rates.

Beyond the economic calendar, stimulus chatter from Beijing also needs monitoring.

US Consumer Confidence and the Fed

On Wednesday, US consumer confidence figures for December will garner investor interest. Economists forecast the CB Consumer Confidence Index to increase from 102.0 to 104.0 in December.

A larger-than-expected rise in consumer confidence could signal a pickup in consumer spending. Upward trends in consumer spending could fuel demand-driven inflation and force the Fed to maintain a hawkish rate path.

A hawkish rate path would impact borrowing costs and disposable income. Downward trends in disposable income could affect consumer spending and dampen demand-driven inflation.

Upbeat consumer confidence figures could also give Fed speakers more influence. Investors must consider Fed commentary following a series of hawkish speakers.

Short-Term Forecast

Near-term AUD/USD trends may hinge on US inflation and personal spending/income numbers, out on Friday. After the hawkish RBA Meeting Minutes, softer-than-expected US inflation figures could tilt monetary policy divergence more toward the Aussie dollar.

AUD/USD Price Action

Daily Chart

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

An AUD/USD break above the $0.68096 resistance level would support a move to the $0.68944 resistance level.

The PBoC, China stimulus, and US consumer confidence will influence buyer demand.

However, a fall through the $0.67286 support level would bring sub-$0.67 and the $0.66162 support level into view.

A 14-period Daily RSI reading of 69.68 shows the AUD/USD on the border with overbought territory (typically above 70 on the RSI scale). Selling pressure could intensify at the Tuesday high of $0.67746.

4-Hourly Chart

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

An AUD/USD move through the $0.68096 resistance level would bring the $0.68944 resistance level into play.

However, a break below the $0.67286 support level would give the bears a run at the 50-day EMA.

The 14-period 4-Hourly RSI at 69.77 shows the AUD/USD on the border with overbought territory. Selling pressure could intensify at the Tuesday high of $0.67746.