AUD to USD Weekly Forecast: Consumer Sentiment and Inflation in the Spotlight

Weekly Overview of the AUD/USD in the Week Ending March 29, 2024

In the week ending on March 29, the AUD/USD declined by 0.70% to $0.65133. The AUD/USD fell to a Tuesday low of $0.65039 before rising to a Thursday high of $0.66345.

AUD/USD Analysis:

On Tuesday, Australian consumer sentiment figures for March warrant investor attention. An upward trend in consumer confidence could signal a pickup in spending intentions. Consumer spending fuels demand-driven inflation and influences the RBA rate path.

The RBA could put interest rate hikes back on the table. A more hawkish rate path could raise borrowing costs, reducing disposable income. Downward trends in disposable income force consumers to curb spending.

Economists forecast the Westpac Consumer Confidence Index to fall 1.6% to 84.6.

Australian inflation figures will garner investor interest on Wednesday. Inflation remains the focal point for the RBA. Hotter-than-expected inflation numbers could refuel bets on an RBA interest rate hike.

Economists forecast the Monthly CPI Indicator to increase from 3.4% to 3.6% in February.

However, investors must also consider Australian retail sales figures on Thursday. The RBA recently highlighted uncertainty about the outlook for household spending. Upward trends in household spending could also influence the RBA interest rate trajectory.

Economists forecast retail sales to increase by 0.4% in February month-on-month. In January, retail sales jumped 1.1%.

Following the less hawkish RBA press conference, investors must also consider RBA board member commentary throughout the week.

US Economic Calendar: Consumer Confidence, Jobless Claims, and the Fed

Chicago and Dallas Fed numbers will garner investor interest on Monday. Investors will likely be sensitive to weaker-than-expected numbers. Signs of a deteriorating US economy could retrigger fears of a hard landing.

Economists forecast the Chicago Fed National Activity Index to fall by 0.9% in February after a 0.3% decline in January. However, economists predict the Dallas Fed Manufacturing Index to increase from -11.3 points to -8.0 points in March.

On Tuesday, core durable goods orders and consumer confidence warrant investor attention. Upward trends in core durable goods orders would align with recent survey-based manufacturing data, signaling a resilient US economy. Economists forecast core durable goods orders to increase by 0.4% month-on-month in February. In January, core durable goods orders declined by 0.3%.

However, consumer confidence numbers could have more impact. An unexpected increase in consumer confidence could signal a positive outlook on consumer spending. Economists expect the CB Consumer Confidence Index to remain at 106.7 in March.

Consumer sentiment will be in focus again on Thursday, with jobless claims and GDP numbers also on the docket. Barring a marked downward revision to US GDP figures for Q4, consumer sentiment, and jobless claims will influence the dollar more.

Tight labor market conditions support wage growth, consumer confidence, and spending.

Economists forecast initial jobless claims to increase from 210k to 215k in the week ending March 23. According to preliminary numbers, the Michigan Consumer Sentiment Index slipped from 76.9 to 76.5 in March.

US Personal Income and Outlays Report and Fed Chair Powell

The all-important Personal Income and Outlays Report for February will be the focal point on Friday. Upward personal income/spending trends and hotter-than-expected inflation numbers could impact bets on a June Fed rate cut. The Fed considers the Core PCE Price Index the benchmark for inflation.

Economists forecast the Core PCE Price Index to increase by 2.8% year-on-year in February after rising 2.8% in January. Moreover, economists expect personal income and spending to advance by 0.4% and 0.4% month-on-month, respectively, in February.

Beyond the numbers, Fed Chair Powell (Fri) and FOMC members Raphael Bostic (Mon), Lisa Cook (Mon), and Christopher Waller (Wed) are on the calendar to speak.

Short-Term Forecast:

The near-term trend for the AUD/USD will hinge on Aussie and US inflation numbers. Hotter-than-expected inflation numbers could delay the timeline for a Fed rate cut. However, a pickup in Australian inflation could refuel bets on an RBA rate hike and tilt monetary policy divergence toward the Aussie dollar.

AUD/USD Price Action

Daily Chart

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

An Aussie dollar breakout from the $0.65500 handle would support a move to the 50-day EMA and the $0.65760 resistance level. A break above the $0.65760 resistance level would give the bulls a run at the 200-day EMA and the $0.66 handle.

Aussie and US inflation numbers and central bank commentary will move the dial.

Conversely, an AUD/USD break below the $0.65 handle would give the bears a run at the $0.64582 support level. A fall through the $0.64582 support level could signal an AUD/USD drop below the $0.64 handle.

Considering the RSI indicator, a 14-period Daily RSI reading of 42.72 suggests an AUD/USD fall below the $0.64582 support level before entering oversold territory.

4-Hour Chart

The AUD/USD hovered below the 50-day and 200-day EMAs, affirming the bearish price signals. Moreover, the 50-day EMA crossed below the 200-day EMA, another bearish price signal.

An AUD/USD break above the 50-day and 200-day EMAs could signal a breakout from the $0.65760 resistance level. A breakout from the $0.65750 resistance level could give the bulls a run at the $0.66500 handle.

However, an AUD/USD drop below the $0.65000 handle could signal a fall through the $0.64582 support level. A break below the $0.64582 support level could signal a drop below the $0.64 handle.

The 14-period 4-Hourly RSI at 37.15 suggests an AUD/USD fall through the $0.64582 support level before entering oversold territory.