China plays a crucial role in the Australian economy, accounting for one-third of Australian exports. The increased demand for Australian products from China is expected to provide a significant boost to the Australian economy and the value of the Australian dollar. This positive development comes at a time when Australia already has a trade-to-GDP ratio above 50% and 20% of the workforce is employed in trade-related jobs.
Tighter labor market conditions in Australia are another factor that could contribute to the growth of the Australian economy. As the labor market tightens, wage growth is likely to occur, leading to increased consumer spending. Australian private consumption already contributes over 50% to the economy, and a further rise in consumer spending would stimulate economic growth even more.
Global economic factors can significantly impact the demand for the Australian dollar. Recently, FedEx (FDX) cut its revenue forecasts, renewing fears of a global recession. This adjustment in revenue projections could alter supply-demand expectations and potentially lead to a weaker demand outlook. If this were to happen, commodity currencies like the Aussie dollar would be negatively affected.
Several economic indicators will be closely watched by investors. The Q3 GDP, Philly Fed Manufacturing Index, and initial jobless claims are among those that could influence the AUD/USD pair. While Q3 GDP revisions are not anticipated, data on jobless claims and Philly Fed Manufacturing figures would likely have a more significant impact. A tight labor market supports wage growth and disposable income, which could fuel consumer spending and demand-driven inflation. This might prompt the Federal Reserve to maintain interest rates at current levels for an extended period to curb excessive spending.
US-China trade tensions and the release of the Personal Consumption Expenditures Report will also influence the AUD/USD pair. Softer-than-expected US inflation figures could push monetary policy divergence further in favor of the Australian dollar. Additionally, any stimulus measures implemented by China would increase buyer demand for the Aussie dollar.
From a technical perspective, the AUD/USD remains bullish, as it is trading above the 50-day and 200-day Exponential Moving Averages (EMAs). This confirms positive price signals. A move towards the $0.67500 handle would indicate a potential rise to the $0.68096 resistance level. However, if the AUD/USD drops below the $0.67286 support level, it could trigger a bearish sentiment, potentially leading to further declines towards sub-$0.67 and the $0.66162 support level. The 14-period Daily Relative Strength Index (RSI) reading of 64.77 suggests a potential move towards the $0.68296 resistance level before entering overbought territory (typically above 70 on the RSI scale).
The Australian dollar is poised for gains as demand from China increases. The positive economic indicators, tight labor market conditions, and the potential impact of global economic factors suggest a favorable outlook for the Australian economy. However, developments in the US-China trade war and US inflation figures should still be closely monitored as they could sway the AUD/USD pair.
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