The Australian dollar rallied above 0.6500 against the American dollar, moving away from three-month lows and benefiting from general greenback weakness, as disappointing US retail sales data supported rate cut expectations from the Federal Reserve. US retail sales fell -0.8% m/m to USD 700.3 billion in January, well below expectations of -0.2% m/m. Used car sales fell -0.6% m/m to USD 567.9 billion, much worse than expectations of a 0.1% monthly increase. Ex-petrol sales fell -0.8% m/m to USD 647.9 billion. Gasoline sales ex-automotive fell -0.5% m/m to USD 515.5 billion. In the three months to January, sales rose 3.1% compared to the same period last year.
However, weak domestic jobs data also reinforced the dovish view of the RBA’s monetary policy. Australia’s unemployment rate rose to a two-year high of 4.1% in January, while employment increased by only 500 when analysts expected 30,000 new jobs. The RBA is expected to make rate cuts of around 40 basis points this year, with the first move seen in August. Earlier this week, RBA Governor Michele Bullock stated, that inflation does not have to slow to 2.5% before the central bank considers cutting rates. However, she emphasized that the central bank remains open to the possibility of further rate hikes amid persistent inflation.
Overall at the moment, the Australian economy is facing a setback due to a rise in the Unemployment Rate that surpassed market expectations. This development usually signals economic weakness and is likely to weigh on the AUD, as investors react to the rising unemployment rate, weakening the value of the currency. In contrast, the latest data from the United States showed an inflation rate (CPI) of 3.1%, exceeding market expectations. This higher-than-expected inflation figure indicates a strong economy, but also raises concerns about the potential for the Federal Reserve to keep interest rates unchanged to control inflation. Such a decision would strengthen the USD, as higher interest rates tend to attract foreign capital, increasing demand for the currency.
In the exchange market, the AUDUSD pair’s rebound from 0.6269 has ended at 0.6870 and since then, the decline has surpassed the 61.8%FR level by registering a 3-month low of 0.6441. AUDUSD intraday bias currently looks neutral with the current recovery, and some consolidation will be seen first. However the outlook will remain bearish as long as 0.6623 resistance holds. A move below 0.6441 would resume the decline, with a possibility to test 0.6337 and 0.6269 support.
On the H4 period, the nearest resistance is seen in the range of 0.6542. A move above this level is likely to test the resistance level range of 0.6609 – 0.6623. However, if the 0.6542 resistance remains intact, consolidation and further downside will return, despite the hourly divergence bias.
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Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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