Can a Recovering Gold Price Drag the Aussie Dollar Higher?
The AUD/USD was seen, "hunting for stops near .8850 after disappointing retail sales data all-but confirmed an RBA rate cut tomorrow," says Shaun Lee at FXWW.
Monthly retail sales figures were unchanged in June, which was weaker than market expectations (mkt: +0.4% m/m).
"This was somewhat surprising given that the commencement of the British Lions rugby tour to Australia, which had its first game in mid-June, was expected to have boosted sales for some retailers. Overall, growth in retail sales has continued to moderate after solid growth earlier in the year, consistent with the moderation in consumer confidence and a further softening in labour market conditions," says Dylan Eades at ANZ Research.
Today’s data reaffirms ANZ's view that the RBA will cut the official cash rate by 25bps following tomorrow’s board meeting.
The Aussie 'bears' are out in force
The technical outlook for the Australian dollar confirms downward pressure remains dominant.
In a technical forecast note ICN Financial Markets say:
"The rally on Friday was short-lived, as price resumed the bearish wave, and AUDUSD extended the downside move. 0.8870-support level managed to halt further decline, where we may see an minor upside bounce supported by the slight bullish divergence on RSI. However, the overall bearish trend remains intact, and the bearish scenario remains favoured for the week."
BUT - Beware a relief rally should there be a surprise (the gold price?)
Sean Lee at FXWW says the bears continue to dominate the Aus dollar, however, the potential for a relief rally is of course with us:
"The bears are rampant in the AUD at the moment and there seems to be no prospect of any sort of rally but I remain a non-believer. Yes, I tried to pick a bottom above 90 cents and luckily managed to jump off that lift before it collapsed, but my sentiment hasn’t really changed and longer term I think these levels will prove to be cheap in the AUD/USD in particular.
"We certainly still have scope in pairs like EUR/AUD to return to more neutral levels but elsewhere the AUD selling is way overdone; do you really want to sell AUD/NZD at 1.14, or AUD/JPY at 87 given all the BOJ expansion? Well that’s what the market is doing and it’s doing so in size, if positioning reports are to be fully believed.
"The RBA seems certain to cut rates tomorrow (certainly not 102% certain like the market is pricing in!) and that is adding more fuel to the bear’s fire but all that’s needed (given current extreme positioning) is one trigger to cause a really hefty dose of short-covering.
"I have a feeling that this trigger might come from Gold. The yellow metal is back above $1300 and looks to me like a market that is short and hopeful, rather than short and confident.
"I think there is a reasonable chance that a major low is already in place and if it starts taking out important technical resistance levels, then it will drag the AUD with it, whether the bears like it or not."
Speculative Traders Forecasting Further AUD Dollar Gains
Lloyds Bank Research tell us that there is an overwhelmingly negative sentiment towards the Australian currency. Commenting on the latest CFTC data:
"Net AUD short positions rose to new highs last week, following weak domestic data and dovish comments from RBA Governor Stevens. The RBA meets early tomorrow morning. There is a very slight chance that they do not cut rates given the AUD has declined further this month. However this is not our base case and it would come as a major upside surprise especially following RBA Steven’s comments last week.
"This would also trigger a sharp rebound in the AUD, which would be the opposite of the RBA desired effect so would seem quite unlikely.
"A 25bp rate cut is widely expected and fully priced in now and there has been some talk of a possible 50bp rate cut at this meeting.
"This seems unlikely as it would reduce the RBAs fire power at a later stage if required. In any case given AUD short positions are at an extreme level we would expect some position squaring post announcement and see potential for AUD gains."