AUD/USD – Retail Sales Vs Trade Balance, Winner: RBA

What a busy day for AUD/USD! Price rallied during early Asian session as short traders started to close out their profitable positions ahead of the Retail Sales news event risk, while speculators joined in the fray, anticipating a better than expected print considering that RBA chose not to embark on another rate cut on Tuesday. This pushed AUD/USD towards 0.918 before the Retail Sales numbers were released, which turned out to be a bearish shocker, sending AUD/USD back towards the 0.9155 support quickly after coming in at 0.1%, weaker than the anticipated 0.3%. At the same time, a bullish force was churning silently, as the less focused on Australia Trade Balance grew much larger than expected, coming in at 670M in the month of May vs 53M expected, and almost 4 times that of April’s 171M which was already revised higher. In the Bull/Bear fight, the stronger Trade Balance figure emerged as the winner, with price pushing higher, reaching 0.919 at one point before pulling back once again.

The pullback after 0.919 was strong, but not entirely unexpected, as Trade Balance tended not to be a strong market mover. Furthermore, the resultant rally from to 0.919 has some speculative components in it, which were always brittle and easily crumbled given the strong bearish backdrop AUD/USD is experiencing currently. Similarly, it is also not surprising to see price finding 0.9155 support once more, with price stabilizing between 0.9155 – 0.9165, similar to the consolidation zone found during US early session yesterday. Whether that is bullish or bearish is entirely up to your interpretation – as traders may argue that price managed to form a new higher consolidation zone after trading mostly under 0.915 and above 0.914 for the past 10 hours, while an alternate interpretation would say that price is bearish as we are technically trading below pre news events levels. Whatever your pick is, it doesn’t matter shortly after as RBA’s Governor Glenn Stevens blew everything out of the water during his scheduled speech.

During the speech, Stevens basically damned the AUD to lower echelons, saying that AUD is still too high despite a good 1,500 pips below the recent highs of 1.06 against the USD. On top of remaining bearish about Australia’s economy (which we already knew about from Tuesday’s RBA statement), Stevens said that the market would receive lower FX rate “if required”, after revealing that the Board “deliberated for a very long time” before coming to a final rate decision. It is obvious that the board is not discussing whether to hike rates or not, hence it stands to reason that RBA did consider cutting rate yesterday, only to decide not to do so in the final decision (perhaps Jun 3.0% inflation has something to do with it). The threat of future rate cuts has never been so direct, driving AUD/USD sharply lower below the 0.914-0.915 consolidation range and sending price below 0.91 for the first time since 2010 Sep.

5 Minutes Chart

Hourly Chart

Looking at Hourly Chart, the latest decline is an affirmation of the descending trendline that has been in play since 27th Jun. Together with the break of previous swing low (which happens to be the previous 2013 low as well), we are looking at AUD/USD potentially being extremely bearish in the short-term. Some form of pullback is possible, but should 0.911 support turned resistance holds, we could see acceleration towards further downside targets e.g. 0.89 on the Weekly Chart.

Traders should also continue to keep watch on USD movements from here out. US stocks traded lower yesterday, a turnaround from Monday’s rally which saw USD strength returning. If the blip in US stocks turns out to be a stronger bearish reversal, AUD/USD traders will have yet another headache contributing to further bearish pressure moving forward.

More Links:
EUR/USD Technicals – 1.30 breached, downside galore
GBP/USD – Pound Drops after Lukewarm UK Construction PMI
USD/CAD – Greenback Rises as US Manufacturing Data Improves

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