AUD to USD Forecast: Market Focus Shifts to US Producer Prices and Retail Sales

Wednesday Overview of the AUD/USD

The AUD/USD gained 0.23% on Wednesday. Reversing a 0.11% loss from Tuesday, the Australian dollar ended the session at $0.66212. The Australian dollar fell to a low of $0.65994 before rising to a high of $0.66352.

China Stimulus and the RBA Dilemma

On Thursday, Beijing will remain in the spotlight as investors await a fiscal stimulus package. Lawmakers were not forthcoming during the National People’s Congress. However, the consensus is that China needs a fiscal stimulus package to meet the 2025 growth target.

A fiscal stimulus package could drive demand from China, a boon for the Aussie dollar.

One-third of Australian exports are bound for China. Significantly, Australia has a trade-to-GDP ratio of over 50%. 20% of the Australian workforce is in trade-related jobs.

The reliance on trade is significant, also exposing the Australian economy and the Aussie dollar to the slump in iron ore prices. Moves to bolster the Chinese real estate sector would drive demand for iron ore.

While investors await updates from Beijing, RBA monetary policy uncertainty also lingers.

In February, RBA Governor Michele Bullock left a rate hike on the table at the RBA Press Conference. The RBA Governor shared her view on inflation, saying,

“We want to see inflation continue to decline, and that’s more important than market pricing. Inflation has a four in front of it, which is too high.”

Wage growth and consumer spending continue to fuel demand-driven inflation. Significantly, the lingering threat of an RBA rate hike is an Aussie dollar tailwind.

There are no economic stats from Australia. However, stats from China could move the dial. New Yuan loan numbers for February will reflect the demand environment in China. Economists forecast new Yuan loans to increase by CNY1,500 billion after rising by 4,920 billion in January.

US Economic Calendar: Retail Sales and Producer Prices in Focus

On Thursday, US producer prices and retail sales warrant investor attention. Hotter-than-expected retail sales figures could impact bets on an H1 2024 Fed rate cut. Consumer spending fuels demand-driven inflation. A higher-for-longer Fed rate path may impact disposable income, curb consumption, and dampen demand-driven inflation.

Economists forecast retail sales to increase by 0.8% in February after falling 0.8% in January.

However, US producer prices may also influence Fed interest rate cut expectations. Producers raise prices in an improving demand environment, passing prices onto consumers.

A higher-for-longer Fed rate path could impact demand and pressure producers to lower prices.

Economists forecast producer prices to increase 1.1% year-on-year in February after rising 0.9% in January.

Short-Term Forecast

Near-term AUD/USD trends will hinge on the US retail sales and producer price numbers. Better-than-expected US data may pressure buyer demand for the AUD/USD. However, monetary policy divergence remains tilted toward the Aussie dollar. The markets expect the Fed to cut interest rates in H1 2024. In contrast, the RBA is willing to raise interest rates.

AUD/USD Price Action - Daily Chart

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

An Aussie dollar return to the $0.66500 handle would support a move to the $0.67003 resistance level.

Chatter from Beijing, market risk sentiment, and the US economic calendar need consideration.

Conversely, an AUD/USD drop below the $0.66 handle would bring the 200-day EMA into play. A fall through the 200-day EMA would give the bears a run at the $0.65760 support level and the 50-day EMA. Buying pressure could intensify at the $0.65760 support level. The 50-day EMA is confluent with the support level.

Considering the RSI indicator, a 14-period Daily RSI reading of 60.60 suggests an AUD/USD move to the $0.67003 resistance level before entering overbought territory.