AUD/USD flirts with 0.7000 on falling Australian retail sales, US Q2 GDP

  • AUD/USD defends post-Fed rally to six-week high even as retail sales in Australia fell in June.
  • Australian retail sales rose 0.2% vs. 0.5% MoM in June expected and 0.9% previously.
  • Australia’s second quarter import price index and export price index also declined.
  • Recession fears jostle with post-Fed optimism, cautious mood ahead of key data/events also challenging pair bulls.

Despite negative data at home, AUD/USD resumes offers to defend Fed-inspired gains around the 0.7000 level. However, the Aussie pair remains on the sidelines as traders await important data/events amid the recession woes.

Australia’s preliminary retail sales for June fell while posting monthly growth of 0.2% compared to market forecasts of 0.5% and 0.9% in previous readings. Additionally, the second quarter (Q2) import price index and export price index were mixed, with the former better than expected at 1.9%, but the latest data fell. at 10.7% versus 19.7% expected and 18.0% forecast.

The data justifies fears of an economic slowdown in Australia, previously conveyed by Bloomberg’s article reporting excerpts from an economic statement to be delivered to Parliament on Thursday by Australian Treasurer Jim Chalmers. However, market anxiety ahead of a meeting between US President Joe Biden and Chinese President Xi Jinping, as well as US GDP data, seem to be probing traders in the pair.

The market’s cautious mood is guided by the US Treasury yield curve, which continues to signal a wider spread between short-term bond coupons and longer-term Treasury yields, suggesting economic pessimism .

10-year US Treasury yields fell nearly four basis points (bps) to 2.78%, while 2-year bond coupons fell 2.58% to 2.98% after the rise Fed rates of 0.75%. Even so, the spread between major US bond coupons remains the widest since 2000 and, in turn, hints at the woes of the US recession. It’s worth noting that the 10-year US Treasury yield pares recent losses by around 2.78% and remains under pressure around 2.98% at press time.

The US Federal Reserve (Fed) matched market expectations on Wednesday by announcing a 75 basis point rate hike. The underlying reason for the pair’s weakness could be attributed to Fed Chairman Jerome Powell’s speech signaling that the hawks are running out of fuel. Powell’s main comments from the Fed were that rates had reached neutral, so there will be no more forward guidance and rates will be decided meeting by meeting.

While depicting the mood, S&P 500 futures are down 0.15% later in the day.

Looking ahead, updates from the virtual meeting between US President Joe Biden and his Chinese counterpart Xi Jinping will join recession fears in entertaining AUD/USD intraday traders. However, particular attention will be paid to the second quarter US GDP.

Also Read: US Gross Domestic Product Snapshot: Would the US Avoid a Technical Recession?

Technical analysis

A successful upside break of the previous resistance line from April and the 50-DMA, along with bullish signals from the MACD, portends further upside for the AUD/USD pair. That said, the 38.2% Fibonacci retracement of the April-July decline, also approaching the mid-June high around 0.7070, appears to be the pair’s immediate resistance. Alternatively, pullback moves may initially target the 50-DMA level of 0.6972 before testing the previous resistance line near 0.6930.

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