Australian Dollars, AUD/USD, US Retail Sales, IGCS – Brief:
Recommended by Daniel Dubrovsky
Get your free AUD forecast
The Australian dollar is deteriorating with risk appetite
The sentiment-related Australian dollar underperformed its major peers on Tuesday. This was during a bad day on Wall Street. The Dow Jones Industrial Average fell more than 1 percent as materials and energy stocks underperformed. Meanwhile, IT stocks fared better. The Nasdaq Composite fell only -0.18%.
A closer look at the price action showed that US Treasury yields rose in the wake of the strong retail sales data. While the overall gauge missed at 0.4% compared to the consensus +0.8%, data excluding auto and gas purchases rose. The latter recorded at +0.6% compared to the +0.2% estimate. Overall, the data indicated that US spending remains healthy.
Consumption is the largest part of the US GDP. Thus a strong consumer base is likely to continue to support economic growth, alleviating concerns about a recession. As such, the rise in bond yields likely reflects traders continuing to price in short-term cuts from the Federal Reserve. When sentiment deteriorated, the risk-averse Australian dollar struggled.
Technical analysis of the Australian dollar
Looking at the daily chart, despite the weakness in AUD/USD, the currency pair is still in a consolidation mode. Prices recently rejected the 100-day simple moving average (SMA), and turned lower. More losses across the midpoint of the Fibonacci retracement level at 0.6664, opens the door to revisit the March low at 0.6568.
Trade Smart – Subscribe to the DailyFX newsletter
Receive timely and compelling market commentary from the DailyFX team
Subscribe to the newsletter
Daily chart of the Australian dollar / US dollar
Australian dollar sentiment analysis
Meanwhile, IG Customer Sentiment (IGCS) shows that around 70% of retail traders are net long AUD/USD. IGCS tends to act as the opposite indicator. Since most traders tend to be bullish, this indicates that prices may continue to fall. This is because bullish exposure increased by 5.25% and 33.69% compared to yesterday and last week, respectively. With that in mind, the recent changes in exposure suggest that further losses could be painful for the Australian dollar.
– By Daniel Dubrovsky, Chief Strategist for DailyFX.com
