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AUD/USD Post-RBA Advance to Gain From Strong Australia Retail Sales

AUD/USD Post-RBA Advance to Gain From Strong Australia Retail Sales

2015-05-05 21:00:00
David Song, Shuyang Ren,
Share:

- 1Q Australia Retail Sales of 0.8% to Mark the Slowest Pace of Growth Since the Contraction in 2Q 2014.

- Household Spending to Expand for Tenth-Consecutive Month in March.

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Trading the News: Reserve Bank of Australia Interest Rate Decision

A 0.8% expansion in Australia 1Q Retail Sales may foster a further advance in AUD/USD as the Reserve Bank of Australia (RBA) appears to be approaching the end of its easing cycle.

What’s Expected:

AUD/USD Retail Sales

Click Here for the DailyFX Calendar

Why Is This Event Important:

It seems as though the RBA is largely changing its tune for monetary policy as Governor Glenn Stevens turns increasingly optimistic towards the real economy, and a further expansion in private-sector consumption may encourage the central bank to adopt a more hawkish tone over the medium-term as the region gets on a firmer footing.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

ANZ Job Advertisements (MoM) (APR)

--

2.3%

Private Sector Credit (MoM) (MAR)

0.5%

0.5%

Employment Change (MAR)

15.0K

37.7K

The pickup in job growth paired with the expansion in private sector credit may generate a strong sales print, and positive dynamics coming out of the economy should boost the appeal of the higher-yielding currency amid the shift in the policy outlook.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

AiG Performance of Services (APR)

--

49.7

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

--

-3.2%

Consumer Price Index- Trimmed Mean (YoY) (1Q)

2.2%

2.3%

However, sticky prices along with waning confidence may push Australian households to scale back on spending, and a marked slowdown in private consumption may keep the aussie capped ahead of the region’s employment report as market participants weigh the fundamental outlook for the region.

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How To Trade This Event Risk(Video)

Bullish AUD Trade: 1Q Retail Sales Expands 0.8% or Greater

  • Need green, five-minute candle following the report for a potential long AUD/USD trade.
  • If market reaction favors a bullish aussie trade, buy AUD/USD with two separate position.
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit.

Bearish AUD Trade: Private-Sector Consumption Disappoints

  • Need red, five-minute candle to consider a short AUD/USD position.
  • Carry out the same setup as the bullish aussie trade, just in reverse.

Read More:

Price & Time: Downside Revival in the Kiwi?

AUD/USD Retail Crowd Remains Short Even as RBA Concludes Easing Cycle

Potential Price Targets For The Release

AUD/USD Daily Chart

AUD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Ongoing closes above 0.7820 (38.2% retracement) along with the bullish RSI momentum raises the risk of seeing a run at the March high (0.8074).
  • DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-short AUD/USD following the RBA interest rate decision, with the ratio currently sitting at -1.27.
  • Interim Resistance: 0.8000 (61.8% retracement) to 0.8020 (38.2% expansion)
  • Interim Support: 0.7710 (23.6% retracement) to 0.7740 (78.6% expansion)

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

4Q

2014

02/05/2014 0:30 GMT

1.1%

1.5%

-1

+15

4Q 2014 Australia Retail Sales

AUD/USD Chart

Australia Retail Sales grew 1.5% during the last three-months of 2014 to mark the fastest pace of growth since 2Q 2013. Despite the better-than-expected print, the Reserve Bank of Australia (RBA) may further reduce the benchmark rate in 2015 amid the downside risks surrounding the region, and the Australian dollar remains at risk of facing additional headwinds over the near to medium-term as the Governor Glenn Stevens retains the verbal intervention on the local currency. Nevertheless, the Australian dollar failed to benefit from the retail sales figure as AUD/USD struggled to hold above the 0.7750 figure, but the pair bounced back during the Asian Pacific tradeto end the session at 0.7787.

--- Written by David Song, Currency Analyst and Shuyang Ren

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

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