The Aussie dollar was looking good for a couple of days. But that was before an appalling set of retail sales numbers which again reinforced to anyone with a bearish bent that whatever the outward success and strength of the economy there is something amiss in consumer land.
Throw in a US dollar on the march and you have the recipe for a big fall in the Aussie dollar. One that carried it down and through the 0.7470 support and one which ultimately now targets 0.7330 and perhaps even the low 71 cent region.
Indeed at 0.7452 it’s down 0.85% with AUDUSD the worst performer of the Major’s this morning with the Euro off a little less than half a per cent and the Yen largely unchanged – for the second day in a row. The CAD is down, as is the Kiwi, but both have fared better than the Aussie.
And that is because whatever the benefits of the Budget, and the solid picture that it paints of the economy, this combination of US dollar strength and residual concerns about consumers and house prices – and the possible negative feedback loop of same – is weighing on sentiment toward the Aussie.
It's as simple and as difficult as that.
Whether it's the RBA or the Federal Treasury, they both say the outlook for the Australian economy is strong. And it is. You can see that in the respective forecasts of 3% growth and you can see it in the jobs data and NAB business survey.
But you can't see it in household spending and consumption. You can't see it in the APRA credit crunch induced fall in housing prices. And you can't see it in the years of tepid wages growth.
And that is what matters. Because that is what will restain the RBA from raising rates anytime soon. That is what offshore investors fear will the chicken that finally comes home to roost for the Goldilocks economy that is Australia over the post-GFC period.
They are simply discounting the blue sky for the dark clouds that are consumers.
So the bias remains lower. Especially while the US dollar remains strong.
0.7624 is the next target and then 0.7330 below that. Rallies are likely to remain offered unless the US dollar turns around. That's a fair chance on a short term basis. But I have lower targets yet for Euro and higher targets for the DXY. Aussie resistance is now 0.7540/75
Have a great day's trading.
Chief Market Strategist
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Soaring US yields trigger the wrecking ball effect as yields become a source of volatility for risk, rather than a source of support