What's more important in consumption based economies than retail sales and employment to gauge where exactly things are at economically? Certainly much is made of manufacturing and especially manufacturing PMI's each month. But the reality is that in the US and here at home in Austalia its consumption that matters.
That means that the release of retail sales in the US for April tomorrow night (exp 0.3% after 0.6% last) and the April employment data for Austalia Thursday (exp +20k, unemployment 5.5% after +4.9k and 5.5% last) are going to be the big events on the fundamental calendar for the Australian dollar this week.
Related to this is also Australia's wage price index which is out Wednesday (exp 0.6% after 0.6% last, 2.1% yoy). Wage rises, or lack of same, has been the big handbrake on the consumption side of the economy, one the RBA is watching closely and keeps noting as a precondition to households improving their outlook and spending.
So we'll be watching that too,
But before all that, it's worth noting how we got here.
And the key is that despite another abysmal retail sales print in Australia the Aussie dollar was able to lift from it's lows last week on the positive feedback loop of a weaker dollar, rising commodities, and the risk appetite associated with both from rising stock markets in the US and across the globe.
But AUDUSD couldn’t quite kick on Friday as the last 4 hours of trade saw the US dollar mount a rearguard action and retake some of the lost ground since the release of the benign – but on track – US CPI data earlier in the week. It's still the case the USD matters - a lot - for the Aussie dollar's direction minute to minute and day to day.
Equally though, positioning and data flow are important structurally for the Aussie dollar as well. To that end, I find the movements in the positioning of the big speculators as shown by the CFTC data released Friday to be instructive.
Personally, I find it remarkable that the CFTC data released Friday shows that the big speculators had hardly touched their net long Euro positions (+120,505 contracts) in the week till last Tuesday as the Euro fell. That puts a lie to the idea it was a position cleanout which drove the Euro lower. Rather it suggests it was a buyers strike from this part of the trading universe. Interestingly for Aussie dollar traders – the big spec kind anyway – did get more short Aussie dollar (-16,766 contracts) before the bounce.
So perhaps we can see here the narrative of forex markets. Traders still haven’t given up on the Euro, but they are giving up on the Aussie dollar. Keep an eye on that one folks – it might prove important for the Aussie in the weeks and months ahead. An it makes this week's WPI and employment data crucial to the outlook - in either direction.
Looking at the price action now and to me, if the Australian dollar can climb back above the 0.7566/70 region – which is the 38.2% retracement of the recent fall from above 78 cents - then it can run toward 76 cents, maybe a little higher toward 0.7630/40. But to get much higher would need the US dollar to fall out of bed.
Support on the day is at 0.7520/25.
Here's the 4-hour chart:
Have a great day's trading.
Chief Market Strategist
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