Australian consumption remains high, with latest Retail Sales figure showing a 1.3% growth in Feb, much higher than expectations of a 0.3% gain. The largest M/M increase since Dec 2009 in retail products was contributed by food (1.1%), household goods (1.6%). This growth is in line with the declining unemployment rate, suggesting the gains may be sustainable in the longer run.
AUD/USD rallied higher on the news, trading around 40 pips higher. This news also lined up nicely with technicals, with price bouncing back up from the 1.045 support and trading above the Kumo. Also, the move invalidated the bearish Kumo twist to form a new bullish twist. Stochastic readings have also moved away from Oversold region, setting up a short-term bullish cycle.
Nonetheless, the pullback from yesterday’s swing high does not appear to be negated. The rally failed to overtake or even test the previous swing high, and the following 2 candles post news suggest that lethargy is setting in for the bulls. This reopens up Senkou Span A (Kumo top) once more, though interim support could be found around 1.047 in the form of ceiling for 2nd and 3rd Apr (before the bullish breakout). Bulls may not need to be overtly worried though, as the uptrend from 1st April is still in play as long as 1.035 remains intact. Though a test towards 1.035 during US trading hours may trigger acceleration towards the 1.035 level and potentially break it since such a move will result in a penetration of current rising Kumo and the formation of a bearish Kumo twist once again.
The rally from early March is still in play despite price action being kept between 1.04 – 1.05 since 23rd Mar. Bulls are finding it difficult to break higher despite price entering the 1.035 – 1.06 consolidation range as early as mid March. Stochastic is heading higher teetering on Overbought region with price just under 1.05 currently, suggesting that a break of 1.05 will most likely bring Stoch readings into the Overbought region and topping before 1.06. This is assuming that there isn’t any strong shift in fundamentals of course, as Oscillators are not reliable during strong trends (at least for anti-trend signals). Given that market is not expecting RBA to cut rate given the mildly hawkish RBA statement  released recently, it is hard to imagine any strong economic news release can allow price to break 1.06 and beyond, sending AUD/USD to a new fresh bullish momentum.
On the other hand, with the hawkish RBA statement, downside event risks emerges. RBA has pulled surprise rate cuts in the past, and could still do it if it wish – since exports are still under threat with an elevated AUD. Mining sector remains weak, and investments in Australia’s other than housing and financial instruments remain soft. There are definitely potential potholes down the road for Australia’s economy, and any of which can easily derail current rally to send price back lower.
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