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AUD/USD- Trading the Australian Retail Sales Report

AUD/USD- Trading the Australian Retail Sales Report

David Song, Strategist

Trading the News: Australia Retail Sales

What’s Expected:

Time of release: 02/07/2013 0:30 GMT, 19:30 EST

Primary Pair Impact: AUDUSD

Expected: 0.3%

Previous: -0.1%

DailyFX Forecast: 0.1% - 0.3%

Why Is This Event Important:

Retail spending in Australia is expected to increase 0.3% during the last three-months of 2012, and the rebound in private sector consumption may prop up the high-yielding currency as it raises the outlook for growth. However, as the Reserve Bank of Australia (RBA) holds a cautious outlook for the region and sees growth ‘a little below trend,’ we may see the sales report fall short of market expectations, and we may see the AUDUSD struggle to maintain the range-bound price action carried over from the previous month as the central bank shows a greater willingness to cut the benchmark interest rate further.

Recent Economic Developments

The Upside

Release

Expected

Actual

Private Sector Credit (MoM) (DEC)

0.2%

0.4%

Consumer Price Index (YoY) (4Q)

2.4%

2.2%

Westpac Consumer Confidence s.a. (MoM) (JAN)

--

0.6%

The Downside

Release

Expected

Actual

Building Approvals (MoM) (DEC)

1.0%

-4.4%

Employment Change (DEC)

4.0K

-5.5K

ANZ Job Advertisement (MoM) (DEC)

1.3%

1.2%

The rebound in consumer sentiment along with easing price pressures may pave the way for a larger-than-expected gain in retail sales, and a positive development may increase the appeal of the Australian dollar as it dampens expectations for additional monetary support. However, the renewed weakness in the labor market paired with the ongoing slack in the real economy may prompt households to scale back on spending, and a dismal print may spark a sharp selloff in the exchange rate as it fuels speculation for lower borrowings costs.

Potential Price Targets For The Release

Forex_AUDUSD-_Trading_the_Australian_Retail_Sales_Report_body_ScreenShot233.png, AUD/USD- Trading the Australian Retail Sales Report

Despite the dovish tone struck by the Reserve Bank of Australia, we’re seeing the AUDUSD maintain the range-bound price action carried over from the previous month, and the pair may continue to consolidate over the next 24-hours of trading should we see a rebound in retail sales. However, a dismal print may spark a sharp selloff in the exchange rate, and we may see the aussie-dollar work its way back towards the 50.0% Fibonacci retracement from the 2011 high to low around 1.0230 should the data raise bets for another rate cut.

How To Trade This Event Risk

Expectations for a rebound in retail spending certainly favors a bullish bias for the higher-yielding currency, and a positive development may pave the way for a long Australian dollar trade as it raises the outlook for growth. Therefore, if sales increases 0.3% or greater, we will need to see a green, five-minute candle following the release to establish a long entry on two-lots of AUDUSD. Once these conditions are fulfilled, we will set the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will generate our first objective. The second target will be based on discretion, and we will move the stop on the second lot to cost once the first trade hits in mark in an effort to lock-in our gains.

On the other hand, the decline in employment along with the ongoing weakness in the real economy may drag on private consumption, and we may see household spending weaken further over the coming months as the region faces an uneven recovery. As a result, if the sales report disappoints, 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 the 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)

3Q 2012

11/05/2012 4:30 GMT

-0.2%

-0.1%

+7

+6

3Q 2012 Australia Retail Sales

Forex_AUDUSD-_Trading_the_Australian_Retail_Sales_Report_body_ScreenShot229.png, AUD/USD- Trading the Australian Retail Sales Report

Household spending slipped 0.1% in the third quarter after rising a revised 1.2% during the three-months through June, and the renewed weakness in private sector consumption may prompt the Reserve Bank of Australia to ease monetary policy further in an effort to encourage a stronger recovery. Nevertheless, the better-than-expected sales report propped up the Australian dollar, with the AUDUSD paring the decline from the previous day, but we saw the pair consolidate throughout the day as the aussie-dollar ended the day at 1.0364.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com.

Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, please follow this link.

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