• Some policymakers suggested hiking interest rates to tame stubborn inflation.

• Data revealed improved business activity in the US manufacturing and services sectors.

• Investors will focus on the US GDP data next week.

The AUD/USD weekly forecast points south as the US dollar recovers amid a decline in Fed rate cut expectations.

Ups and downs of AUD/USD

The Aussie had a bearish week as the dollar recovered amid a decline in Fed rate cut expectations. The major catalysts in the week were the FOMC meeting minutes and the US PMI figures. When the Fed meeting minutes came out, investors were surprised that some policymakers had suggested hiking interest rates to tame stubborn inflation. As a result, expectations for a cut in September dropped.

Then came the US PMI reports, which revealed improved business activity in the manufacturing and services sectors. This gave the dollar another boost, weighing on the Australian dollar.

Next week’s key events for AUD/USD

Next week, investors will focus on only one major report from the US showing the Gross Domestic Product. The last report missed forecasts and raised fears that high interest rates were hurting the economy. Another downbeat report would raise expectations that the Fed will cut rates in September.

However, if the economy expands at a faster-than-expected rate, there will be a decline in rate cut expectations. Notably, recent data, including business activity, shows the economy is doing well. Therefore, if the GDP report continues this trend, there will be a lower chance that the Fed will cut rates in September.

AUD/USD weekly technical forecast: Temporary pullback to the 0.5 Fib retracement level

On the technical side, the AUD/USD price is in a bullish trend above the 22-SMA, with the RSI supporting bullish momentum above 50. However, the price has pulled back after touching the 0.6700 key psychological level. This is also near the 0.618 Fib retracement level.

However, given the bullish bias, the pullback is likely temporary. Moreover, the price has met strong support at the 0.5 Fib retracement level and the 22-SMA. Price action has shown that the price might reverse since it has made a bullish candle.

In the coming week, there is a high chance the price will bounce off the support zone to retest the 0.6851. A break above this level would make a higher high, confirming a continuation of the bullish trend.

https://www.forexcrunch.com/blog/2024/05/25/aud-usd-weekly-forecast-dollar-gains-as-rate-cut-hopes-dim/