The Australian dollar has weakened sharply today, after very disappointing retail sales figures. Month-over-month retail sales fell 0.6% vs. expectations of 0.3% growth. As worries mount regarding economic growth in Q3, the Australian dollar has weakened as a result. Despite today's set-back our short-term outlook on the Australian dollar remains neutral. In earlier weeks, the currency was selling off thanks to weakness in the Chinese yuan (China is the country's biggest trading partner) and in industrial commodity prices.
AUD/USD is currently trading below 0.7830. Looking at EUR/AUD, the exchange rate is now back above 1.50, and is currently above 1.5020. Finally, the pound has also gained against the Aussie, with the exchange rate above 1.6910.
On Monday, we saw fairly strong manufacturing survey data (54.2) and strong inflation figures as well (2.5% YoY). Tuesday's Reserve Bank of Australia interest rate decision and statement was a non-event, as we covered in our preview. Today, we saw weak retail sales data overshadow strong trade balance numbers given concerns regarding future economic growth.
The Australian dollar bounced back sharply on October 4, thus we are now neutral on the currency. Earlier, the currency was selling off on comments from RBA Governor Philip Lowe and continuing weakness in the Chinese yuan. Looking at a daily chart of the Aussie, the currency remains is neither overbought nor oversold, and remains within normal trading conditions. This is based on various technical indicators.
From a medium term perspective, we are downgrading the Aussie to bearish on continuing weakness. The Aussie has weakened in the last three weeks of September, and continues to sell off. The currency is weakening for a variety of reasons including the limited possibility of future interest rate hikes and weakness in China's economy. Looking at a weekly chart, the Aussie has re-entered normal trading conditions having been overbought for most of September. Our analysis is based on various technical indicators.