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Summary: After three consecutive days of decline, the Australian dollar entered positive territory on Thursday, with the AUDUSD pair falling over 1%, reaching an 11-month low. During the European session, the AUDUSD is trading at 0.6393, up 0.35%.

Fundamentals

The latest retail statistics in Australia show poor consumer spending, with retail sales in August increasing by only 0.2% seasonally adjusted month-on-month, below the expected 0.3% increase. Year-on-year sales growth stands at 1.5%.

Ben Dorber, the Australian Bureau of Statistics (ABS) head of retail statistics, suggests that this modest growth indicates significant constraints on consumer spending. He notes that the small increase in August suggests consumers continue to restrict retail spending.

The trend growth in retail sales paints a more alarming picture. Dorber adds that, in terms of trends, retail sales have increased by 0.1%, a mere 1.3% increase compared to August 2022, marking the smallest trend growth in the series over the past 12 months.

Considering the impact of high inflation and strong population growth on retail sales last year, this historic low trend growth underscores how much consumers have cut back on expenses to cope with rising living costs.

In terms of the market, consumer spending in Australia, a major driver of economic growth, is facing issues. Consumers are squeezed by high borrowing costs and rising inflation. These difficulties are reflected in the soft August retail sales report, which shows a 0.2% month-on-month increase. This is down from 0.5% in July and below the market's general expectation of 0.3% month-on-month. Without the boost from the FIFA Women's World Cup held in Australia and New Zealand, which promoted sales of goods and dining establishments, this data could have been even weaker.

For the Reserve Bank of Australia, the weak retail sales report adds support for a fourth consecutive pause in interest rate hikes. The RBA is set to convene in October, and a key question is whether rates have reached their peak at the current benchmark rate of 4.10%. The new RBA Governor, Michelle Bullock, has not taken any notable actions and has chosen to follow the policy of her predecessor, Philip Lowe. Bullock states that the upcoming rate decision will depend on key data and warns that rate hikes are still under consideration.

Bullock's hawkish stance is understandable, as inflation rose to 5.2% in August, still well above the RBA's 2% inflation target. Bullock does not want to lose credibility by suggesting that rates have already peaked and then having to hike them as inflation continues to rise. The market views the rise in inflation as a temporary phenomenon, expecting an overall downward trend, and has already priced in expectations of a rate cut in May 2024.

Technical Analysis

After weak Australian retail sales data, the AUDUSD remains above 0.6350, unaffected by disappointing economic data. As of the time of writing, the spot trading price is 0.6333, with a daily gain of 0.35%.

In fact, it is more accurate to say that the AUDUSD has risen due to profit-taking in the US dollar at the end of the month, which has pushed this asset into a corrective phase.

In yesterday's trading, according to our strategy, there was a risk of the Australian dollar breaking lower against the US dollar. Near the closing stages, the asset did indeed break lower, but due to trading nearing the end of the session and a decline in trading volume, the asset did not experience the expected collapse but instead exhibited a slow decline and minor correction pattern. This was also supported by profit-taking in the US dollar long positions at the end of the month, which pushed prices higher after the initial drop.

Currently, following our strategy from yesterday, prices are expected to further rise into the 0.6440 range before continuing the downward trend structure. However, a collapse scenario is not anticipated, instead, a slow decline structure similar to before is expected. In terms of trading strategy, it is recommended to go short at highs.

Trading Recommendations

Trading Direction: Short

Entry Price: 0.6430

Target Price: 0.6210

Stop Loss: 0.6520

Valid Until: 2023-10-11 23:55:00

Support: 0.6380, 0.6357, 0.6272, 0.6210

Resistance: 0.6426, 0.6452, 0.6484, 0.6511