AUD to USD Forecast: Aussie Strength on China’s Economic Rebound?

Chinese Economy in the Spotlight

On Friday (May 17), economic data from China will impact buyer demand for the AUD/USD.

Economists forecast industrial production to increase 5.4% year-on-year in April after rising 4.5% in March. Moreover, economists expect retail sales to advance 3.7% year-on-year after a 3.1% increase in March.

Other stats include fixed asset investment and unemployment numbers. However, barring deviations from forecasts, these will likely play second fiddle to the retail sales and industrial production numbers.

Economists predict the unemployment rate to hold steady at 5.2% and for fixed asset investments to rise 4.6% year-on-year, year-to-date, in April.

An improving demand environment could support the Australian economy and the Aussie dollar.

China accounts for one-third of Australian exports. Australia has a trade-to-GDP ratio above 50%, with 20% of the Australian workforce in trade-related jobs. Improving labor market conditions could support wage growth and disposable income. Upward trends in disposable income could fuel consumer spending. Private consumption contributes approximately 50% to the Australian economy.

The current inflation and interest rate environment have adversely impacted consumer spending and the retail sector.

US Economic Calendar: Fed Speakers in Focus

Later in the Friday session, investors should monitor FOMC member commentary. Reactions to the recent inflation and retail sales figures warrant investor attention amid rising bets on a September Fed rate cut.

FOMC member Christopher Waller is on the calendar to speak. Before the latest US Jobs and CPI Reports, the Fed Governor warned there was no rush to cut rates because of sticky inflation. A change in outlook on interest rates could move the dial.

The impact of the inflation and retail sales figures on sentiment toward the Fed rate path was evident. According to the CME Fed WatchTool, the chances of the Fed leaving interest rates unchanged in September fell from 34.9% to 27.6% on Wednesday (May 15).

Short-Term Forecast

Near-term AUD/USD trends will likely hinge on the economic data from China and FOMC member commentary. Upbeat data from China could fuel buyer demand for the Aussie dollar. However, lingering concerns about sticky inflation amongst FOMC members could tilt monetary policy divergence toward the US dollar.

AUD/USD Price Action

Daily Chart

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

An Aussie dollar move above the $0.67003 resistance level could bring the $0.67500 handle into play. A break above $0.67500 would give the bulls a run at the $0.67967 resistance level.

Economic data from China and FOMC member speeches need consideration.

Conversely, an AUD/USD break below $0.66500 could signal a drop to the $0.65760 support level and the 200-day EMA. A fall below the 200-day EMA could give the bears a run at the 50-day EMA.

With a 14-period Daily RSI reading of 63.07, the AUD/USD could revisit the $0.67500 level before entering overbought territory.