Originally published by AxiTrader
7706 - that's the high the Aussie traded up to over the past day before it pulled back a little to sit at 0.7685 this morning.
It still gained around a quarter of a percent but it materially underperformed a Canadian dollar driven by NAFTA hopes and the kiwi, which was driven by, well, hope it holds the bottom of the range maybe?
Some say the Aussie gained on the back of the RBA decision yesterday. But it was already running higher before that as S&P 500 futures lifted 12 points in our time zone and as there was less of a sense of fear in Australia and Asia than what might have been expected given the big sell off to start the week in US markets.
Regardless of why, the price action is a clear sign Aussie buyers are still lurking.
But I can't highlight the importance of today's retail sales more, after what for me was a very cautious read on the consumer sector in yesterday's statement by RBA Governor Lowe.
As I wrote earlier in Markets Morning, the RBA is on hold but it is also clearly noting the increased participation rate is dampening wages and that in turn is a potential headwind for household consumption.
On the latter, Governor Lowe said yesterday that, “one continuing source of uncertainty is the outlook for household consumption, although consumption growth picked up in late 2017. Household income has been growing slowly and debt levels are high”.
The Governor also changed his focus in the statement from "unemployment rate declined" to "employment has grown strongly over the past year, with employment rising in all states". He also noted UE sticky at 5.5% in the April statement.
Clearly, with jobs growth so strong there is no argument on employment growth. But even trying to remain my optimistic self that sounds a little #Lipstickonapiggy. If you'll excuse the crude visualisation.
Certainly, at present I'm positive in aggregate for growth. But, my sense is the Australian economy is as reliant on population growth domestically and offshore influences as ever.
Back to the Aussie and it's best characterised as rangy at the moment. Indeed it has the benefit of a massive trendline stretching back to late 2015/early 2016 sitting down and around the 76 cent mark. And as I've highlighted above the fact that the Aussie has been hanging tough even when stocks stink tells us much about overall sentiment toward the battler. At least against the Greenback. On the crosses it might be a different story – especially against the Kiwi which has miraculous strength.
On the day the Aussie will be driven by retail sales and what it says about the concerns governor Lowe articulated again yesterday about consumption.
Anecdotes aren’t evidence, but it does seem like the breakdown between the rising cost – and percentage of household budget – of non discretionary items is biting into discretionary items. Wages need to rise to fix that. But for the moment with a sticky unemployment rate, underemployment which ticked up a little, and a rising participation rate that doesn’t look like it will happen in a hurry. So retail sales are key.
To the levels to watch then and 76 cents is still the big downside and trendline support.
Even with the rally of the past 24 hours the the downtrend continues with last week's low at 0.7640/42 the key short term before the trendline.
Topside resistance is last night's high of 0.7706 and then 0.7715. Above here it's back toward 0.7760/65.
Have a great day's trading.