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AUDUSD: Trading Australia’s Retail Sales Report

By , Currency Strategist  and  , Currency Analyst
28 February 2012 20:15 GMT

Trading the News: Australia Retail Sales

What’s Expected:

Time of release: 02/29/2012 0:30 GMT, 19:30 EST

Primary Pair Impact: AUDUSD

Expected: 0.3%

Previous: -0.1%

DailyFX Forecast: -0.1% to 0.2%

Why Is This Event Important:

Retail sales in Australia is expected to increase 0.3% after contracting 0.1% in December and the rebound in private sector consumption may help to prop up the high-yielding currency as the development encourages an improved outlook for the $1T economy. As growth prospects improve, we may see the Reserve Bank of Australia continue to soften its dovish tone for monetary policy, and the central bank may endorse a wait-and-see approach throughout the first-half of the year in order to shield the region from the slowdown in global growth.

Recent Economic Developments

The Upside

Release

Expected

Actual

Employment Change (JAN)

10.0K

46.3K

Unemployment Rate (JAN)

5.3%

5.1%

Consumer Prices (YoY) (4Q)

3.3%

3.1%

The Downside

Release

Expected

Actual

Average Weekly Wages (QoQ) (NOV)

1.0%

0.5%

AiG Performance of Construction Index (JAN)

--

39.8

House Price Index (YoY) (4Q)

-3.3%

-4.8%

The sharp rise in employment paired with easing price pressures could spark a large pickup in retail sales, and a positive report could push the AUDUSD above 1.0800 as market participants scale back speculation for a rate cut. However, the slowdown in wage growth paired with the ongoing weakness in the housing market may drag on private sector consumption, and a dismal report may encourage the RBA to lower borrowing costs further in an effort to spur to a more robust recovery. In turn, the AUDUSD may continue to give back the rebound from 1.0596, and we may see the aussie-dollar track lower over the near-term as the pair appears to be carving out an interim top ahead of March.

Potential Price Targets For The Release

AUDUSD_Trading_Australias_Retail_Sales_Report_body_AUD_SCALP_02.png, AUDUSD: Trading Australia’s Retail Sales Report

A look at the encompassing aussie structure sees the pair holding within the confines of an ascending channel formation dating back to the February 22nd low. Interim support comes in at 1.0730 backed by the 61.8% Fibonacci extension taken from the February 14th and 22nd troughs at 1.0712, and the convergence of the 50% extension and channel support at 1.0690. A break below this level risks further losses of the aussie with extended targets seen at 38.2% extension at 1.0668 and the weekly low at 1.0650. Topside targets are eyed at 1.0768 backed closely by the 100% extension at 1.0780 and the 1.08-figure. A breach above this psychological barrier eyes critical resistance at the 123.6% extension at 1.0830. This level also coincides with a longer term 23.6% Fibonacci extension taken from the December 15th and February 22nd troughs. Should the print prompt a bullish reaction, look to target topside levels with a break below RSI support negating our short-term bullish bias on the aussie.

How To Trade This Event Risk

Forecasts for a rebound in retail sales supports a bullish call for the aussie and a positive outcome could pave the way for a long Australian dollar trade as the development encourages an improved outlook for the $1T economy. Therefore, if consumption increases 0.3% or greater in January, we will need to see a green, five-minute candle following the release to generate a buy entry on two-lots of AUD/USD. Once these conditions are met, we will set the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will establish our first target. The second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade reaches its mark in order to preserve our profits. The second objective will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches its mark in an effort to lock-in our profits.

In contrast, easing wage growth paired with the ongoing slack within the real economy may drag on consumption, and another dismal sales report could spark a sharp reversal in the exchange rate as the fundamental outlook for the region deteriorates. As a result, if we see the report fall short of market expectations, we will implement the same strategy for a short aussie-dollar trade as the long position laid out above, just in the opposite direction.

Impact that Australia Retail Sales has had on AUD during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

DEC 2011

2/6/2012 0:30 GMT

0.2%

-0.1%

+4

-7

December 2011 Australia Retail Sales

AUDUSD_Trading_Australias_Retail_Sales_Report_body_ScreenShot095.png, AUDUSD: Trading Australia’s Retail Sales Report

Retail spending unexpectedly slipped 0.1% in December after rising a revised 0.1% in the previous month, while consumption increased 0.4% during the fourth quarter amid forecasts for a 0.6% expansion. The AUDUSD struggled to hold its ground following the dismal report, with the AUDUSD falling back from 1.0766, and the high-yielding currency continued to consolidate throughout the day as exchange rate settled at 1.0725.

--- Written by David Song, Currency Analyst and Michael Boutros, Currency Strategist

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To contact Michael email mboutros@dailyfx.comor follow him on Twitter @MBForex.

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

To be added to Michael’s email distribution list, send an email with subject line “Distribution List” to mboutros@dailyfx.com

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View the Expo Presentation on ‘Trading the News’ For Additional Resources

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28 February 2012 20:15 GMT