Saturday, May 25, 2024

AUD/USD Weekly Forecast: The RBA, China, and the US Jobs Report

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Economists forecast the trade balance to narrow from A$11.027 billion to A$9.900 billion in February.

From elsewhere, private sector PMIs from China could also impact the AUD/USD.

On Monday, the Caixin Manufacturing PMI will put the Chinese economy in the spotlight. Economists forecast the Caixin Manufacturing PMI to increase from 50.9 to 51.0 in March. Beyond the headline figure, employment, new orders, and prices need consideration.

China accounts for one-third of Australian exports. An improving macroeconomic backdrop could drive demand for Australian goods.

US Economic Calendar: Services and the Labor Market

On Monday, the US manufacturing sector will draw investor interest. A pickup in manufacturing sector activity could support recent comments from Fed Chair Powell about the US avoiding a recession.

Beyond the headline figure, investors should also consider the sub-components, including prices, new orders, and employment.

Economists forecast the ISM Manufacturing PMI to increase from 47.8 to 48.4. While the figures could influence sentiment toward the US economy, they are unlikely to affect the Fed rate path. The manufacturing sector accounts for less than 30% of the US economy.

On Tuesday, the focus will shift to the US labor market. The JOLTs Job Openings Report could give investors a sense of labor market conditions. A pullback in job openings and a decline in quit rates may signal a deterioration in labor market conditions. Employees are less likely to quit jobs if there is increased uncertainty in the labor market.

Economists forecast job openings to decrease from 8.863 million to 8.790 million. Significantly, weaker labor market conditions could impact wage growth and reduce disposable income. Downward trends in disposable income may curb consumer spending and dampen demand-driven inflation.

The US labor market and services sector warrant investor attention on Wednesday. Economists expect the ADP to report employment to increase by 130k in March. A larger-than-forecast number could signal tighter labor market conditions and a pickup in wage growth.

However, the ISM Services PMI will need consideration. The services sector accounts for over 70% of the US economy and remains the main contributor to inflation. A pickup in service sector activity and upward trends in the employment and prices sub-components could affect the Fed rate path.

Economists forecast the ISM Services PMI to remain steady at 52.6 in March.

The US Jobs Report

On Thursday, US jobless claims will be in focus before the all-important US Jobs Report (Fri). The US Jobs Report could significantly impact investor bets on an H1 2024 Fed rate cut. Wage growth, the unemployment rate, and nonfarm payrolls will be the focal points.

Economists forecast average hourly earnings to increase 4.1% year-on-year in March, down from 4.3% in February. Moreover, economists expect nonfarm payrolls to increase by 200k after a 275k rise in February. Economists predict the unemployment rate to remain unchanged at 3.9%.

The US Federal Reserve

Beyond the numbers, investors must track Fed speakers. Fed Chair Powell is on the calendar to speak on Wednesday. FOMC members Lisa Cook (Mon), Mary Daly (Tues), Michelle Bowman (Wed/Fri), Austan Goolsbee (Wed/Thurs), Michael Barr (Wed), Adriana Kugler (Wed/Thurs), Loretta Mester (Thurs), Susan Collins (Fri), and Thomas Barkin (Fri) will also deliver speeches.

Short-Term Forecast:

Near-term trends for the AUD/USD will likely hinge on the services PMIs, the US Jobs Report, and Fed speakers. A hotter-than-expected US Jobs Report and a pickup in US service sector activity could cut bets on an H1 2024 Fed rate cut. Hawkish Fed commentary in response to economic data could tilt monetary policy divergence toward the US dollar.

AUD/USD Price Action

Daily Chart

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

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

The RBA Meeting Minutes, Australian trade data, PMIs from China, and the US economic calendar need consideration.

Conversely, an AUD/USD fall through the $0.65 handle would bring the $0.64582 support level into play. A break below 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 46.94 suggests an AUD/USD fall through the $0.64582 support level before entering oversold territory.

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