China Private Sector PMIs in Focus Pre-Fed

Monday Overview

The AUD/USD rallied 0.65% on Monday. Following a 0.18% gain on Friday, the Aussie dollar ended the day at $0.63738. The Aussie dollar fell to a low of $0.63320 before reaching a high of $0.63837.

Australian Private Sector Credit and the Chinese Economy in Focus

On Tuesday, private sector credit figures for September will garner investor interest. An elevated interest rate and inflation environment could force banks to tighten credit controls, impacting consumer access to credit for spending. A downward trend in spending could ease demand-driven inflationary pressure and ease pressure on the RBA to raise interest rates.

Economists forecast private sector credit to increase by 0.3% in September (August: 0.4%).

Later in the session, NBS private sector credit numbers from China also warrant consideration. China accounts for one-third of Australian exports. With an Australian trade-to-GDP ratio of over 50%, increased demand from China would be a boon for the Australian economy and the Aussie dollar.

Economists forecast the NBS Manufacturing PMI to rise from 50.2 to 50.4 and the Non-Manufacturing PMI to increase from 52.0 to 52.2 in October.

US Wages and Consumer Confidence in the Spotlight

On Tuesday, US employment costs and consumer confidence will draw investor attention.

Softer wage growth and waning consumer confidence could signal a negative consumption outlook. An elevated interest rate environment and a downtrend in wage growth would impact disposable income. A downward trend in disposable income could lead to a pullback in spending, easing demand-driven inflationary pressures.

Economists forecast Employment Costs – Wages to rise by 0.8% in Q3 (Q2: 1.0%). Significantly, economists expect the CB Consumer Confidence Index to fall from 103.0 to 100.0 in October.

The forecasts align with the recent US GDP Report, which highlighted a fall in disposable income.

Short-Term Forecast

The AUD/USD sits in the hands of the Fed interest rate decision and the US Jobs Report. However, a hawkish RBA policy outlook and an improving macroeconomic environment in China could give the AUD/USD a run at $0.65.

AUD/USD Price Action

Daily Chart

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

A break above the $0.63854 resistance level and 50-day EMA would support a move toward the $0.64900 resistance level. Better-than-expected PMIs from China and softer US wage growth would drive demand for the AUD/USD.

However, an AUD/USD drop below $0.63500 would give the bears a run at the $0.62749 support level and the trend line. An escalation in the Middle East conflict could pressure the AUD/USD.

A 14-period Daily RSI reading of 50.40 indicates a move through the 50-day EMA before entering overbought territory (typically above 70 on the RSI scale).

4-Hourly Chart

The AUD/USD remains above the 50-day EMA while hovering below the 200-day EMA, sending bullish near-term but bearish longer-term price signals.

A move through the 200-day EMA and $0.63854 resistance level would support a move toward the $0.64900 resistance level.

However, a break below the 50-day EMA would give the bears a run at the $0.62749 support level and the trend line.

The 14-period 4-Hourly RSI at 57.81 indicates an AUD/USD break above the 200-day EMA and $0.63854 resistance level before entering overbought territory.