Originally published by AxiTrader
Key Takeaway
The Australian dollar traded down near last week's low as it dropped to 0.7587 before finding some support which lifted it back into the 0.7620 region before spending the last 9 hours either side of 76 cents where it sits this morning at 0.7608
That the buyers are still happy to pick Aussie up on dips - even when it breaks an important trendline - is encouraging support for the Aussie bulls.
But today is a huge day for the Aussie with the release of trade data for February at 11.30am AEST and then the RBA decision and governor's statement at 2.30pm AEST.
What You Need To Know
As I highlighted in yesterday's note while the rest of the G10 and most of the BRIC and emerging markets experienced an uptick in positive data beats over the past 5 months or so Australia has been an obvious laggard with no obvious lift in the economy of the data.
So it was against this backdrop that the release of weaker than expected retail sales for February yesterday that traders once again saw that the outlook for the economy is complicated right now.
To recap. The ABS reported that retail sales in February fell 0.1%, well south of the markets 0.3% expected increase. That print reinforced concerns about the state of the domestic economy and consumption right now and in the months, year, ahead given that it's the second negative print in the past 3 months.
Naturally the corollary of weaker than expected data was that we saw the Aussie come under some selling pressure. It fell from a high around 0.7640 to a low in the 0.7580's before mounting a bit of a recovery.
That move also knocked the Aussie dollar below the uptrend line from the lows for this year.
Technically, and system wise - my system that is - a break below 0.7580/85 would be necessary to confirm this break and likely that a decent top has formed in the Aussie dollar.
Again, above 77 cents - I know!
But in no small measure the trade data and RBA decision will be important in determining if that break occurs.
Recall last month when the Australian economy recorded a lower than expected surplus - yes surplus - of $1,302 million for January the AUD/USD came under pressure. Expectations for today that traders need to note are that forecasters are predicting a surplus for February of $1,800 million for February.
A beat or a miss is likely to move the Aussie.
Likewise, what the governor has to say about the state of the economy is going to be important for the Aussie.
By their comments and actions lately we know Australia's prudential regulator - APRA - and the RBA are worried about the surge in house prices, interest only and investment borrowing at the moment and want to rein it in.
That is taken to mean the RBA can't ease policy because it would simply ignite more demand from investors. Indeed governor Lowe told a parliamentary committee that very thing a little while back.
BUT, and this is a huge but.
The RBA is already worried Australia has too low inflation. They are also a little worried that overall unemployment and underemployment are in worse shape than just the headline ABS figure suggests.
So when you look at the falling trend in retail sales growth. And you take into account that the contribution of consumers to the Q4 2016 GDP growth was driven by another fall in the savings rate it's worth wondering if the RBA might not see a need for further stimulus.
Indeed I believe - based on governor Lowes words and the most recent RBA board meeting minutes that the RBA does believe the economy could be aided by a further rate cut.
But he's worried that - in his words - whether with household debt at record levels "is it really in the national interest to get a little bit more employment in the short term at the expense of encouraging that fragility?"
That's the answer that has markets convinced he won't cut, or hint at a cut.
But with APRA trying to clamp down on rampant borrowing and address the issue of fragility in the economy all this debt brings the door just might be further ajar than the market thinks.
Looking at the short term chart of the AUD/USD there is short term resistance at 0.7610/15 and then the one-hour downtrend comes in between 0.7620/25 depending on the time of day today.
So the parameters I'm watching are a break of 0.7580/85 or 0.7620/25.
Have a great day's trading.