Originally published by AxiTrader
The Australian dollar didn't get a sustainable lift from either the really strong NAB monthly business survey or weakness in the US dollar in the past 24 hours.
Indeed the Aussie is at 0.7855, which is roughly where it was 24 hours ago, even though the yen, euro, swissie, and pound have all made gains against a US dollar. The greenback appeared to come under pressure from a headline that - to me at least - erroneously highlighted new Fed chair Jerome Powell noting the Fed will take financial stability risks into account when they occur, rather than the actual message of higher rates.
Indeed as I highlighted earlier in Market's Morning Powell said, “we are in the process of gradually normalizing both interest rate policy and our balance sheet”. But he also said, “we will remain alert to any developing risks to financial stability”. I guess that is with respect to recent volatility but it could also be a comment about the late cycle fiscal stimulus that the Trump Administration is pumping into the US economy.
But as we have seen since December - in particular - traders are want to distrust any US dollar rally rather than embrace it.
That said though the Aussie dollar didn't capitalise on the US dollar's weakness, which is likely a result of the speech by RBA Assistant Governor Luci Ellis yesterday highlighting again that the RBA is on hold for some time. It was a neat combination of positivity and disquiet about the outlook for Australian households and wages.
Interestingly I was in Melbourne on Monday and Tuesday talking to clients about the economic outlook for Australia with a specific focus on households and consumption. I used many of the same charts and made many of the same points Ellis did.
Source: RBA SoMP (and Ellis speech)
Indeed the chart Ellis highlighted of the fall in growth in discretionary spending and subtle upshift in spending on essentials was, in my presentations, titled "the most important slide in the pack".
Ellis said, "the living cost pressures that many households feel have therefore been an income story, not a price inflation story. Although utilities prices did increase significantly in some states in recent quarters, much of households' regular spending has seen relatively little in the way of price increases for a number of years...Weak income growth can run below consumption growth for a time, but not forever. If households start to see this weakness in income growth as permanent, they are likely to change their spending patterns in response. We might be seeing this in the details of the consumption figures: growth in spending on discretionary items, like travel and eating out, has slowed while growth in spending on essentials has held up".
So Australia needs wages growth for the RBA to change its tune and be more confident on the outlook for the economy.
I'm more optimistic than Ellis and believe we'll see wages start to lift in the next 6 months. But the clear implication is that rates are on hold for a while.
And that is one of the primary reasons why the Aussie dollar undeperformed overnight as the US dollar slipped once more.
Turning to the charts now. Overall AUD/USD has a mild downside bias on the dailies. But the simplest way to characterise the outlook is to say yesterday's candle was indecisive and the AUD/USD needs to break either side of that 0.7876/0.7827 range for the next shoe to drop.
Have a great day's trading.