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AUD/USD Outlook Hinges on Australia Retail Sales, Turnbull Budget

AUD/USD Outlook Hinges on Australia Retail Sales, Turnbull Budget

David Song, Strategist

- Australia Retail Sales to Increase 0.3% Following 0.6% Expansion in 4Q 2016.

- Household Spending to Rebound 0.3% After Unexpectedly Contracting 0.1% in February.

Trading the News: Australia Retail Sales

Australia Retail Sales

AUD/USD stands at risk of extending the decline from earlier this month should Australia’s Retail Sales report cast a weakened outlook for growth and inflation. Nevertheless, Prime Minister Malcom Turnbull’s 2017-18 budget may sway the aussie-dollar exchange rate as the coalition government plans to boost public spending and pledges curb corporate taxes, and the push to encourage a stronger economy may heighten the appeal of the Australian dollar as it raises the Reserve Bank of Australia’s (RBA) scope to move away from it’s easing cycle.

Why Is This Event Important:

Even though the RBA appears to be in no rush to normalize monetary policy, a material shift in the fiscal outlook may push Governor Philip Lowe & Co. to change their tune especially as officials argue ‘the recently announced supervisory measures should help address the risks associated with high and rising levels of indebtedness.’ With that said, the RBA may show a greater willingness to raise the official cash rate off of the record-low as ‘the economy is continuing its transition following the end of the mining investment boom, with the drag from the decline in mining investment coming to an end and exports of resources picking up.

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Impact that Australia Retail Sales has had on AUD/USD during the previous quarter

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

4Q

2016

02/06/2017 0:30 GMT

0.9%

0.9%

-12

-17

4Q Australia Retail Sales

AUD/USD 15-Minute

AUD/USD Chart

Australia Retail Sales increased 0.9% after holding flat during the three-months through September, while household spending unexpectedly slipped 0.1% in December amid forecasts for a 0.3% rise. A deeper look at the report showed sales of household goods slumped 2.3% in the last month of 2016, while demand for apparel increased 1.4%, with department store sales also climbing 0.3%. The Australian dollar struggled to hold its ground following the mixed batch of data, with AUD/USD pulling back from 0.7676 to end the day at 0.7659.

How To Trade This Event Risk(Video)

Bearish AUD Trade: Australia Retail Sales Continues to Disappoint

  • Need a red, five-minute candle following the sales report to consider a short AUD/USD position.
  • If market reaction favors a bearish aussie trade, sell AUD/USD with two separate lots.
  • Set stop at the near-by swing high/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.

Bullish AUD Trade: Private-Sector Consumption Exceeds Market Expectations

  • Need a green, five-minute candle to favor a long aussie trade.
  • Carry out the same setup as the bearish AUD trade, just in reverse.

Potential Price Targets For The Release

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using Trading View

  • AUD/USD continues to track the 2016-range following the failed run a the November high (0.7778), and the pair remains at risk of giving back the advance from the start of 2017 as price & the Relative Strength Index (RSI) largely preserve the bearish formations from March; however, the lack of momentum to break/close below the Fibonacci overlap around 0.7390 (38.2% retracement) to 0.7420 (61.8% retracement) may foster a near-term rebound especially as the pair comes up against channel support, with the first topside hurdle coming in around 0.7459 (38.2% retracement) followed by 0.7500 (50% retracement) to 0.7530 (38.2% expansion).
  • Interim Resistance: 0.7730 (61.8% retracement) to 0.7770 (61.8% expansion)
  • Interim Support: 0.7150 (161.8% expansion) to 0.7180 (61.8% retracement)

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IG Sentiment

Retail trader data shows 60.7% of traders are net-long AUD/USD with the ratio of traders long to short at 1.55 to 1. The percentage of traders net-long is now its highest since December 13 when AUD/USD traded near 0.74932. The number of traders net-long is 15.1% higher than yesterday and 45.2% higher from last week, while the number of traders net-short is 5.9% higher than yesterday and 23.6% lower from last week.

For More Information on Retail Sentiment, Check Out the New Gauge Developed by DailyFX Based on Trader Positioning

For More Updates, Join DailyFX Currency Analyst David Song for LIVE Analysis!

--- Written by David Song, Currency Analyst

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

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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