Australian Dollar Sinks with Dow Jones After US Retail Sales, Where to for AUD/USD?

Australian Dollar, AUD/USD, US Retail Sales, IGCS – Briefing:

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Australian Dollar Deteriorates with Risk Appetite

The sentiment-linked Australian Dollar underperformed against its major counterparts on Tuesday. This was during a day that Wall Street turned sour. The Dow Jones Industrial Average sank over 1 percent as materials and energy stocks underperformed. Meanwhile, information technology shares fared better. The Nasdaq Composite only fell -0.18%.

A closer look at price action showed that US Treasury yields gained in the aftermath of solid retail sales data. While the overall gauge missed at 0.4% compared to the +0.8% consensus, data that excluded automobile and gas purchases roared higher. The latter clocked in at +0.6% compared to the +0.2% estimate. Overall, the data suggested that American spending remains healthy.

Consumption is the largest segment of US GDP. A strong consumer base would thus likely continue supporting economic growth, cooling concerns about a recession. As such, the surge in bond yields likely reflected traders continuing to price out near-term cuts from the Federal Reserve. When sentiment deteriorated, the risk-averse Australian Dollar suffered.

Australian Dollar Technical Analysis

Looking at the daily chart, despite weakness in AUD/USD, the currency pair remains in a consolidative setting. Prices recently rejected the 100-day Simple Moving Average (SMA), turning lower. Further losses through the midpoint of the Fibonacci retracement level at 0.6664 opens the door to revisiting the March low at 0.6568.

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AUD/USD Daily Chart

Chart Created in TradingView

Australian Dollar Sentiment Analysis

Meanwhile, IG Client Sentiment (IGCS) shows that about 70% of retail traders are net-long AUD/USD. IGCS tends to function as a contrarian indicator. Since most traders are biased higher, this hints that prices may continue falling. This is as upside exposure increased by 5.25% and 33.69% compared to yesterday and last week, respectively. With that in mind, recent changes in exposure hint that further losses may be in sore for the Australian Dollar.

Australian Dollar Sentiment Analysis

— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

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