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Australia Today - Aussie dollar back near 74 cents as the ASX and SPI cling to trendline support

Market Analysis /
Greg McKenna / 06 Aug 2018

Welcome to my Australia Today column where I'll have a look at some economics, the Aussie dollar, and the outlook for the ASX200 and SPI. 

As every Feedback is welcome

THE AUSTRALIAN DOLLAR

As you’ll see below I reckon that retail sales data on Friday was very solid. And you can see in the lift in copper (HGc1 v AUDUSD in the chart below) and base metals Friday night together with the fact that the Australian CESI score has improved to +45.8 (the highest of the markets I watch) that there are some positives that have accrued to the Aussie in the past week.

Click on me, I'll expand
Click on me, I'll expand

That allowed AUDUSD to outperform EURUSD on Friday night. Of course, the Euro has it’s Italian and other issues to deal with, Britain has it’s Brexit mess to sort out, so the Aussie might stand out as a good cross trade in these circumstances.

Looking ahead there are plenty of hurdles for the Aussie to jump over this week.

We have 3 RBA events with the Board meeting tomorrow, a speech from governor Lowe on Wednesday, and the quarterly Statement on Monetary Policy on Friday. Based on the recent recovery in consumer sentiment and retail sales it’s fair to say the RBA is likely to be fairly sanguine on that outlook and thus the overall growth outlook. But any discussion of risks around housing and the knock-on impact of consumers could challenge the Aussie if it heads toward recent range highs between 0.7450 and 0.7480.

Click on me, I'll expand
Click on me, I'll expand

Realistically though it is still going to be a USD story. AUDUSD might outperform EURUSD if the RBA talks positively. But should Euro break 1.1490 there is every chance the Aussie will be challenging 73 cents again.

On the day 0.7392 needs to hold, a break opens 0.7375/80 and then 0.7360. Topside 0.7411 looks tough. 

ASX INDEXES

 

Naturally this week is going to be interesting for the local market for local reasons for a change as earnings season kicks off with gusto. There’s is plenty for investors to get their teeth into. As you know we don’t trade individual stocks at Axi but the ones I’ll be watching closest are the CBA on Wednesday, for the overall health of the economy and banking, AMP on Wednesday as well  – because that’s a really interesting company right now, and REA group on Friday  for a snapshot on housing here and in their other markets. The AFR has more here.  

To the price action then, and I’m going to give you a really clean easy view of the SPI 200 recently. The trend line is holding, the range top is intact. A break of 6,172 opens the way lower to 6,145 38.2% retracement of the last upmove for the SPI and if that breaks it’s 6,106. 6,245/67 remains resistance. The level to watch on the physical ASX is 6,226 - that's the trendline. 

Click on me, I'll expand
Click on me, I'll expand

A LITTLE ON THE ECONOMY

Retails sales were solid Friday – with a print of 0.4% in June and 1.2% for the June quarter.  That’s important folks because as you know I’ve written lately it suggests that after a mini-drought a few months back consumers are more confident and are back spending. But, the data revealed something very important about consumer the consumer psyche right now. That is while spending is growing overall there was a big surprise around prices. Westpac’s economics team said, “the CPI detail had pointed to a modest 0.2% gain in retail prices. Instead they recorded a 0.1% dip, all store-type categories except cafes & restaurants recording declines. Food price inflation in the survey continues to track 1.5ppts below the CPI measure suggesting consumers are shifting spending patterns towards  items/retailers offering the most aggressive price discounting”.

That’s important to remember folks if this house price fall morphs into something more pernicious like I think it might.

DATA:

On the day it’s fairly quiet with ANZ job ads out in Australia and a bank holiday in Sydney before German factory and construction data tonight.

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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