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

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

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.

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.

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