AUD to USD Forecast: How Geopolitical Uncertainties Impact the Australian Dollar

Highlights

• The Aussie dollar experienced a 0.22% gain on Friday, closing at $0.63835.
• Geopolitical tensions could spell volatility for global financial markets on Monday.
• Later today, FOMC member speeches may sway market sentiment, especially on interest rates.

Friday Overview

On Friday, the AUD/USD gained 0.22%. Following a 0.71% rally on Thursday, the Aussie dollar ended the day at $0.63835. The Aussie dollar fell to a low of $0.63123 before rising to a high of $0.64002.

Geopolitical Tension Puts the Aussie Dollar Under Selling Pressure

On Monday, the global financial markets will react to the risk of a broader Middle East conflict. Uncertainty about stability in the Middle East, oil, and supply chain disruptions, and the possible impact on the global economy will likely fuel demand for the US dollar.

The Australian trade-to-GDP ratio is above 50%. An uncertain demand outlook and possible supply chain disruptions would adversely impact the Australian economy, the AUD/USD, and labor market conditions. Trade-related jobs account for 20% of the Australian labor market.

Market participants must closely monitor updates from the Middle East throughout the day. The threat of a more widespread conflict would likely intensify demand for the US dollar.

There are no Australian economic indicators to distract investors today. However, economic indicators from China and the IMF meetings will be focal points during the week.

FOMC Member Speeches in Focus

Later today, FOMC member speeches may influence sentiment toward the Fed and the interest rate outlook.

FOMC voting members Michael Barr, Lorie Logan, and Philip Jefferson are on the economic calendar to speak today. The markets will respond to FOMC member views on the US Jobs Report and the likely influence on the Fed interest rate path.

However, following the news from the Middle East, investors must also consider guidance on how the Fed will respond. FOMC members may give a range of scenarios for the markets to consider.

Short-Term Forecast

Uncertainty stemming from the events in the Middle East and the threat of a more widespread conflict will weigh on the AUD/USD. Near-term trends will likely hinge on central bank comments and news updates from the Middle East.

AUD/USD Price Action

Daily Chart

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

An AUD/USD move through the $0.63854 resistance level would support an AUD/USD run at the 50-day EMA. News updates from the Middle East and FOMC member commentary will likely dictate trends today.

An escalation in the Middle East and hawkish Fed comments will likely weigh on buyer appetite for the AUD/USD. A break below the trend line would give the bears a run at the $0.62749 support level.

A 14-period Daily RSI reading of 43.44 supports an AUD/USD fall below the trend line before entering oversold territory (typically below 30 on the RSI scale).

4-Hourly Chart

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

A break above the 50-day EMA would support a move through the $0.63854 resistance level to target $0.64.

However, failure to break above the 50-day EMA would leave the trend line and $0.62749 support level in play.

The 14-period 4-Hourly RSI at 48.02 supports an AUD/USD fall to the trend line before entering oversold territory.