AUD to USD Forecast: Will Aussie Consumer Confidence Trends Influence RBA?

Consumer Confidence and the RBA

Consumer confidence numbers for May will put the AUD/USD in focus early in the Asian Tuesday session (May 21).

Economists forecast the Westpac Consumer Confidence Index to increase by 0.9% to 83.1 in May.

An improving consumer confidence environment could signal a pickup in consumer spending. Upward trends in consumer spending could drive demand-driven inflation and delay an RBA rate cut.

In the recent RBA press conference, RBA Governor Michele Bullock discussed the effects of high interest rates and inflation on household spending. Signals of consumer intentions to increase spending could refuel investor bets on an RBA interest rate hike.

Beyond the headline figure, investors should consider the sub-components, including unemployment expectations, time to buy a major household item, and family finances over the next 12 months.

Later in the Asian session, the RBA Meeting Minutes also require consideration. The Minutes could highlight any division among board members about tackling sticky inflation. In the RBA press conference, Governor Bullock poured cold water on speculation about an interest rate hike. Household spending remained a concern.

However, recent wage growth and unemployment numbers could limit the effects of a hawkish tone. Softer wage growth and weaker labor market conditions could reduce disposable income and affect consumer confidence. Declining disposable income and consumer confidence could impact consumer spending and dampen demand-driven inflation.

US Economic Calendar: Fed Speakers Remain in Focus

Later in the Tuesday session, Fed speakers will attract investor attention for the second successive session.

FOMC members Thomas Barkin, Christopher Waller, John Williams, Raphael Bostic, and Michael Barr are on the calendar to speak during the Tuesday US session.

On Monday (May 20), Michael Barr and Raphael Bostic discussed needing more confidence before considering an interest rate cut. Deviation from the Monday scripts needs consideration. Similar comments would put Thomas Barkin, Christopher Waller, and John Williams under the spotlight.

Despite concerns about inflation, the markets continued to bet on a September Fed rate cut. According to the CME Fed WatchTool, the probability of the Fed leaving interest rates unchanged in September increased from 35.2% to 39.0% on Monday (May 20).

More widespread concerns about inflation amongst FOMC members could further reduce expectations of a September rate cut.

Short-Term Forecast

Near-term AUD/USD trends will likely hinge on Aussie consumer confidence numbers, Fed speakers, and the upcoming Services PMI numbers. A pullback in US service sector activity could overshadow hawkish Fed comments and tilt monetary policy divergence toward the Aussie dollar.

AUD/USD Price Action

Daily Chart

The AUD/USD held well above the 50-day and 200-day EMAs, sending bullish price signals. Furthermore, the 50-day EMA converged on the 200-day EMA. A bullish cross of the 50-day EMA through the 200-day EMA would give further buy signals.

An Aussie dollar move through the $0.67003 resistance level could give the bulls a run at the $0.67500 handle. A break above the $0.67500 handle would support a move toward the $0.67967 resistance level.

Aussie consumer confidence numbers, the RBA Meeting Minutes, and Fed chatter need consideration.

Conversely, an AUD/USD fall through the $0.66500 handle would bring the $0.65760 support level and the EMAs. Buying pressure could increase at the $0.65760 support level. The EMAs are confluent with the support level.

With a 14-period Daily RSI reading of 60.68, the AUD/USD could revisit the $0.67500 handle before entering overbought territory.