Originally published by AxiTrader
Today is the day when two worlds collide for the Australian dollar.
Or at least they could be.
I say that because not only do we get the Reserve Bank of Australia (RBA) meeting - and an expected largely unchanged, but upbeat statement from RBA governor Lowe - but because we also get the latest read on the one true worrying sector in the Australian economy at present, retail sales.
The last three months have delivered retail sales results of -0.3% in July, -0.5% in August, and 0% - no growth after these falls - in September. Forecasts are for October's number to show a 0.3% rise when it is released at 11.30am this morning.
A beat or a miss will be important for the Aussie dollar because it will either ease or intensify the debate about what the RBA should do with interest rates. Coming just a few hours before the governor's statement at 2.30 pm AEDT that is doubly so.
At present retail, consumption, and households have the RBA on alert, but not alarmed. Another weak month might change that. At least in the market's mind.
Also out today is the quarterly current account balance and contribution of net exports to tomorrow's Q3 GDP figure. Yesterday's partials - business indicators which included wages and company profits data - suggest some confidence in the markets 0.7%/0.8% estimate for tomorrow's GDP release. Net exports are expected to contribute 0.25% to that - so any material move away from that, positive or negative, will impact AUD/USD sentiment.
So as I say there is every chance this is a big day for the Aussie dollar.
The past 24 hours, however, have been far from exciting - if that's what you like - for the Aussie dollar. Trading in just a 34 point range of 0.7579 and 0.7613 the Aussie has largely been becalmed as traders focussed on the bigger pairs.
It's at 0.7597 at the moment. That's down 0.16% on Friday's close and not too bad all things considered.
A big part of that stability has been an apparent sentiment shift in the Aussie dollar over recent days. A number of houses have suggested the peak pessimism I talked about in the Aussie may be lifting. Certainly the rally in iron ore - which has gained 24% since the end of October - and the lift in investor sentiment in markets, together with the expectation of solid growth in 2018 has helped.
But it's the local data, and its impact on the Australian - US bond spreads which is the key for me.
In mid-November the Australian Citibank economic surprise index bottomed out around -34. But it's still sitting at -22. So while my own system suggests that the Aussie can rally in a fundamental sense it's unlikely to garner investor and trader support unless or until the data starts to improve.
Today, this week, could be a turning point. Or it could reinforce the negative tone.
Looking at the chart now and you can see the price action of the past 24 hours consolidated the break of the trendline Friday. That's a good sign. But realistically for the AUD/USD to kick higher, it needs to push up and through 0.7620, then 40/45 which were Friday's and last week's highs.
A break of that zone could open another 100 points of topside as 0.7749 representing the 38.2% retracement level of the fall from 81 cents, or thereabouts.
On the downside support is o.7560/65 (trendline) then 0.7550 and recent lows at 0.7530.
Have a great day's trading.