Impact of Fed Rate Path on Borrowing Costs and Consumer Spending

Impact of Fed Rate Path on Borrowing Costs and Consumer Spending

The predictions by economists regarding the US building permits and housing starts in February present a mixed outlook. While building permits are expected to decline slightly, housing starts are forecasted to see a significant jump. This difference in forecasts could potentially indicate a need for more building permits in the near future. Additionally, the better-than-expected NAHB Housing Market Index numbers have created uncertainty around the possibility of a Fed rate cut in the first half of 2024.

The shift in market sentiment towards a lower probability of a Fed rate cut in June has put pressure on the AUD/USD currency pair. The trend in the near term for the AUD/USD will heavily rely on the guidance provided by the RBA and the Fed. A hawkish stance by the RBA combined with Fed support for a rate cut in June could result in a move towards the $0.67 handle for the AUD/USD.

The technical analysis of the AUD/USD pair indicates a bearish trend, with the currency pair remaining below both the 50-day and 200-day EMAs. However, a breakthrough above the 50-day EMA and the $0.65760 resistance level could pave the way for a challenge towards the 200-day EMA and the $0.66 mark. Investors are closely monitoring the RBA press conference and US housing sector data to make informed decisions about the AUD/USD.

In case of a downside move, a break below the $0.65500 support level could signal a further decline towards the $0.64582 support level. The RSI indicator, with a 14-period Daily RSI reading of 48.58, suggests a potential drop for the AUD/USD towards the $0.64582 support level before reaching oversold territory.

Overall, the uncertainty surrounding the Fed rate path and its impact on borrowing costs and consumer spending is influencing the market dynamics for the AUD/USD pair. As economic data unfolds and central bank decisions are announced, investors are bracing for potential volatility in the currency pair.

Forecasts

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