AUD to USD Weekly Forecast: RBA’s Dilemma with Retail Sales and Inflation Data

Weekly Overview of the AUD/USD in the Week Ending May 24, 2024

In the week ending on May 24, the AUD/USD slid by 0.98% to $0.66266. The AUD/USD rose to a Monday high of $0.67093 before falling to a Friday low of $0.65921.

The Australian Economic Calendar

Australian retail sales warrant investor attention on Tuesday (May 28). Weaker-than-expected wage growth figures and a higher unemployment rate have raised investor bets on a 2024 RBA rate cut. However, a pickup in household spending could fuel demand-driven inflation and refuel speculation about an RBA rate hike.

Economists forecast retail sales to increase by 0.1% in April after falling by 0.4% in March.

On Wednesday (May 29), the influential Australian Monthly CPI Indicator may influence sentiment toward the RBA rate path.

Economists expect the Monthly CPI Indicator to fall from 3.5% to 3.3% in April.

Hotter-than-expected inflation numbers would raise investor expectations of an RBA rate hike. In the RBA press conference, RBA Governor Michele Bullock stated that inflation and the labor market remained the focal points for the RBA. Significantly, the RBA Governor added that taming inflation trumped concerns about the effects of elevated interest rates on households.

Australian housing sector data will draw investor interest on Thursday (May 30). Economists predict building permits to increase by 0.7% in April after jumping by 1.9% in March. Nevertheless, the stats will likely influence the RBA interest rate trajectory.

On Friday (May 31), housing and private sector credit numbers also need consideration.

Weaker consumer demand for credit could signal a pullback in household spending. Downward trends in household spending could impact the Australian economy and dampen demand-driven inflation. The net effect may be a less hawkish RBA rate path to reduce borrowing costs and support consumption.

Economists forecast housing credit to increase by 0.4% in April after advancing by 0.4% in March. Furthermore, economists expect private sector credit to advance by 0.3% after a 0.3% rise in March.

The RBA Wrap-Up

Beyond the numbers, investors should monitor RBA commentary. RBA Chief Economist Sarah Hunter is on the calendar to speak on Friday. Reactions to retail sales data, inflation figures, and views on the RBA rate path could move the dial.

US Economic Calendar: Consumer Confidence, GDP, Jobs, Personal Income and Outlays

The US CB Consumer Confidence Index will attract investor attention on Tuesday. Downward trends in consumer confidence could signal a pullback in consumer spending. Weaker consumer spending could dampen demand-driven inflation and raise investor bets on a September Fed rate cut.

Economists forecast the CB Consumer Confidence Index to fall from 97.0 to 95.9 in May.

Furthermore, softer-than-expected numbers could refuel speculation about a US economic downturn. Private consumption accounted for 67.6% of the US economy in March 2024.

First quarter GDP and US jobless claims need consideration on Thursday (May 30). The US economy expanded by 1.5% in Q1 2024 after growing by 3.4% in Q4 2023. Revisions could influence buyer demand for the US dollar. However, the US jobless claims could impact market sentiment toward the Fed rate path.

Economists forecast initial jobless claims to increase from 215k to 218k in the week ending May 25.

A jump above 230k could rekindle investor hopes of a September Fed rate cut. A deteriorating labor market could impact wage growth and reduce disposable income. Downward trends in disposable income could force consumers to curb spending.

While the stats on Tuesday and Thursday will attract investor interest, the Personal Income and Outlays Report will draw the interest of the Fed.

Upward personal income/spending trends and sticky inflation may ignite investor bets on a Fed rate hike.

Economists expect personal income and spending to increase by 0.3% and 0.3% in April, respectively. Furthermore, economists expect the Core PCE Price Index to rise 2.7% year-on-year in April after increasing 2.8% in March.

Fed Speakers Need Tracking Amidst Shifting Bets on a September Fed Rate Cut

Investors should monitor FOMC member commentary, with consumer confidence, the labor market, and the Outlays Report in focus.

FOMC members Loretta Mester (Tues), John Williams (Wed/Thurs), Neel Kashkari (Tues), and Raphael Bostic (Fri) are on the calendar to speak. Views on inflation and the Fed interest rate trajectory need monitoring.

Short-Term Forecast:

The near-term trend for the AUD/USD will hinge on Aussie retail sales and Aussie inflation data, the US Personal Income and Outlays Report, and central bank chatter.

While the RBA talked down the chances of a rate hike, hotter-than-expected retail sales and inflation numbers could raise bets on an RBA rate hike. However, the US Personal Income and Outlays Report may impact monetary policy divergence more.

AUD/USD Price Action

Daily Chart

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

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

Aussie retail sales, Aussie inflation numbers, US consumer confidence, and US labor market data need consideration before the Friday session.

Conversely, an AUD/USD fall through the 50-day EMA, the $0.65760 support level, and the 200-day EMA could give the bears a run at the $0.64582 support level. Buying pressure may intensify at the $0.65760 support level. The EMAs are confluent with the support level.

With a 14-period Daily RSI reading of 54.20, the AUD/USD may climb to the $0.67003 resistance level before entering overbought territory.