AUD to USD Forecast: The US Services PMI to Impact Bets on a Fed Rate Hike

Bob Mason
Updated: Jun 2, 2024, 09:56 GMT+00:00

Key Points:

  • Australian private sector PMI numbers for May drew investor interest early in the Thursday (May 23) Asian session.
  • The Judo Bank Services PMI slipped from 53.6 to 53.1, while the Manufacturing PMI held steady at 49.6.
  • Later in the Thursday session, US jobless claims and the Services PMI also need consideration.
AUD to USD Weekly Forecast

In this article:

Australian Private Sector PMIs Disappoint

Judo Bank Manufacturing and Services PMI figures for May influenced buyer demand for the AUD/USD early in the Thursday (May 23) Asian session.

The Judo Bank Manufacturing PMI remained unchanged at 49.6 in May. Economists forecast an increase to 50.1. Furthermore, the Judo Bank Services PMI fell from 53.6 to a three-month low of 53.1. Economists expected the PMI to decline to 53.2.

The pullback in the Services PMI impacted the AUD/USD more, accounting for over 60% of the Australian economy.

According to the preliminary survey,

  • Upward trends in labor costs drove input prices higher, leading to a more accelerated rise in output prices.
  • Across the services sector, new business increased at the joint-fastest pace in two years.
  • Firms across the private sector increased payrolls in response to the upswing in new orders.

Input price, employment, and new orders could draw the attention of the RBA. Recent wage growth and unemployment numbers reduced investor bets on an RBA rate hike. However, the latest survey-based numbers could change the narrative. Higher labor costs could increase disposable income, drive consumer spending, and fuel demand-driven inflation.

In the RBA press conference, RBA Governor Michele Bullock highlighted the importance of taming inflation. Upward trends in consumer prices may force the RBA into a more hawkish rate path.

US Economic Calendar: Private Sector PMIs, the Labor Market, and the Fed

Later in the Thursday session, US initial jobless claims and private sector PMIs will attract investor attention.

Economists forecast initial jobless claims to decline from 222k to 220k in the week ending May 18.

A larger-than-expected fall could drive buyer demand for the US dollar. Tighter labor market conditions could support wage growth and increase disposable income. Higher disposable income could fuel consumer spending and demand-driven inflation. A more hawkish Fed rate path could raise borrowing costs and reduce disposable income.

While the labor market data will influence the AUD/USD, the S&P Global Services PMI will likely impact the pair more.

Economists forecast the S&P Global Services PMI to remain at 51.3 in May. An unexpected increase could support buyer appetite for the US dollar.

The services sector contributes over 70% to the US economy. Moreover, housing services sector inflation remains a bugbear for the US Federal Reserve. A pickup in service sector activity and higher price trends could raise investor bets on a Fed interest rate hike.

With the US labor market and services sector in focus, investors should also monitor FOMC member speeches. Views on inflation, the economy, and the interest rate trajectory could move the dial. FOMC member Raphael Bostic is on the calendar to speak.

Short-Term Forecast

Near-term AUD/USD trends could hinge on the US Services PMI and Fed speakers. Hotter-than-expected US services sector activity could fuel investor bets on a September Fed rate hike and tilt monetary policy divergence toward the US dollar.

AUD/USD Price Action

Daily Chart

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

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

US labor market data, the US Services PMI, and Fed chatter need consideration.

Conversely, an AUD/USD drop below the $0.65760 support level and the EMAs would bring sub-$0.65500 into play. Buying pressure could intensify at the $0.65760 support level. The EMAs are confluent with the support level.

With a 14-period Daily RSI reading of 53.76, the AUD/USD could visit the $0.67500 handle before entering overbought territory.

AUD to USD Daily Chart sends bullish price signals.
AUDUSD 230524 Daily Chart

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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