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Is now a good time to buy the Australian dollar? Retail sales remain strong

on Sep 28, 2022
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  • Commodity currencies decline across the FX dashboard as central banks tighten
  • Monthly retail sales in Australia came out better than expected
  • Only a move above 0.68 would invalidate the bearish bias

Commodity currencies such as the Australian dollar have outperformed during the COVID-19 pandemic. As long as central banks eased the monetary policy via low rates and bond-buying programs, commodity prices boomed, helping currencies such as the Australian dollar.

But those times are long gone.

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Central banks are now in reverse – raising rates and selling bonds they bought previously. Moreover, the sentiment is even more extreme because, in some cases, there is a lower bound on rates, but the upside is unbounded.

Therefore, it should be no surprise that the Australian dollar is one of the weakest major currencies on the FX dashboard. Clearly, the Reserve Bank of Australia’s rate hikes did not help.

Yet, the local economy remains strong. For example, the recent piece of economic data revealed this week shows that monthly retail sales in Australia exceeded expectations.

So is it time to pick the Australian dollar from the lows?

Monthly retail sales are running strong

The most recent piece of economic data from Australia reveals that monthly retail sales remain strong. Sales at department stores, household goods, or dining out, are robust for the currency to remain so weak.

Also, the 3-month annualized sales growth rate is greater than 8%. Therefore, the RBA should continue its tightening cycle, supporting the currency.

AUD/USD chart looks increasingly bearish

It may be that the retail sales are stronger than expected, but the AUD/USD chart looks heavy. Also, it could be that only the US dollar pushes higher against all its peers.

AUD/USD chart by TradingView

While many would be inclined to think that this is a reversal pattern (i.e., a falling wedge), the pattern has one big issue. Namely, the last segment of it should have only pierced the lower trendline.

Instead, the market fell much more, suggesting that the pattern is actually a running triangle.

So what should AUD/USD bulls do?

First, wait. Second, watch the running triangle’s invalidation level, which sits at 0.68. A bounce to 0.68 invalidates the continuation pattern, and a bottom might be in place.

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