AUD/USD Daily Forecast: Economic Indicators Suggest a Push Toward $0.70

Aussie Dollar Eyes Return to $0.70

The RBA Meeting Minutes on Tuesday, August 20, drove the AUD/USD toward $0.67500.

The RBA faced a close call on whether to hike interest rates for the second consecutive meeting. Elevated inflation, stronger-than-expected domestic final demand, and robust employment growth increased the risk of inflation not returning to target in a reasonable timeframe.

Board members agreed that monetary policy may need to be tighter than previously projected. Uncertainty in consumption and the labor market suggests that AUD/USD trends could depend on Aussie services sector activity, CPI data, wage growth, and retail sales.

The possibility of a higher-for-longer rate path could push the AUD/USD pairing toward $0.70. If the RBA maintains a 4.35% cash rate through Q4 2024, the interest rate differential between Australia and the US, currently at 115 basis points, could narrow significantly.

Services PMI to Test RBA’s Hold Policy

Private sector PMIs, on Thursday, August 22, could influence investor sentiment regarding the RBA rate path. The services sector will be the focal point, significantly impacting inflation and GDP.

Following the RBA Meeting Minutes, subcomponents including, prices and employment, will require consideration. The July survey highlighted increases in price pressures, with wage costs pushing input prices to a 12-month high, though the job creation rate slowed, possibly influencing future wage growth trends.

If price and wage growth continue alongside higher job creation, speculation about a Q4 2024 RBA rate hike may intensify. Rising bets on an RBA rate hike could support an AUD/USD move toward $0.70. Economists forecast that the Judo Bank Service PMI will drop from 50.4 in July to 50.1 in August.

Expert Views on the Aussie Labor Market and Inflation

VanEck Australia Head of Investments & Capital Markets, Russel Chesler, remarked on the recent rise in the Aussie unemployment rate, stating,

“The resilience of the Australian labour market is a thorn in the side for lower inflation. While the recent CPI print showed annual inflation tracking inline with expectations, it’s difficult to see how it can fall much further if services inflation – which is being propped up by the hot jobs market – doesn’t come down. Annual wage growth continues to tick upwards.”

Chesler added,

“The added liquidity from federal tax cuts and power bill rebates are still to feed into the market. Australia’s path has taken a sharp turn from the US’s. The latest US inflation print showed a continued fall in core inflation, making a rate cut by the Fed all but guaranteed for September 2024. Australia’s journey, beset by many roadblocks, is going to take a lot longer.”

US Economic Calendar

On Wednesday, August 21, the FOMC Meeting Minutes will draw investor interest.

Discussions about the labor market, the economy, and the rate path will be crucial. Increasing concerns over the labor market and the economic outlook could raise expectations of a 50-basis point September rate cut. A 50-basis point interest rate cut and 25-basis point cuts in November and December would leave the Federal Funds Rate at 4.50%.

An FFR of 4.50% would narrow the interest rate differential between the US and Australia to 15 basis points, supporting an AUD/USD move above $0.70.

On Friday, August 23, Fed Chair Powell could greenlight a September rate cut. The increasing concerns about the US labor market have increased the chances of a 50-basis point rate cut.

According to the CME FedWatch Tool, the probability of a 25-basis point September rate cut dropped from 76.0% on Monday to 67.5% on Tuesday, August 20. The chances of a 50-basis point rate hike increased from 24.0% to 32.5%.

US economic indicators, including services sector PMI and labor market data, on Thursday, August 22, could prove crucial. Weaker numbers could raise the odds of a 50-basis point September rate hike, possibly impacting US dollar demand.

Short-Term Forecast: Bullish

Near-term AUD/USD trends will hinge on the services PMIs, US jobless claims, and the Fed. Weaker data from the US could boost bets on a 50-basis point Fed rate cut, possibly pushing the AUD/USD toward $0.70

Investors should remain alert, with investor sentiment toward the Fed and RBA rate paths influencing AUD/USD price trends. Monitor the real-time data, news updates, and expert commentary to adjust your trading strategies.

Stay updated with our latest views and analysis to manage exposures to the forex markets.

AUD/USD Price Action

Daily Chart

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

A break above $0.67500 could give the bulls a run at the $0.67967 resistance level. Furthermore, a breakout from the $0.67967 resistance level could signal a move toward the $0.68996 resistance level.

Investors should consider the FOMC Meeting Minutes and Fed commentary.

Conversely, a drop below the $0.67003 support level could bring the top trend line into play. A fall through the top trend line may give the bears a run at the 50-day EMA.

With a 14-period Daily RSI reading of 67.06, the Aussie dollar may rise to the $0.67967 resistance before entering overbought territory.