Aussie extends slide as retail sales slip

The Australian dollar is seeing all red, with the currency in decline for a fifth consecutive day. Currently, AUD/USD is trading at 0.7316, down 0.18% on the day. The pair fell below the 73-level earlier in the day.

Australian retail sales weaker than forecast

Australia retail sales for June (preliminary estimate) disappointed, as the decline of -1.8% was worse than the consensus of -0.5% and below the May reading of 0.4%. The release could make investors nervous about the health of the economy for two reasons. First, the decline was much sharper than expected. Secondly, it marked the first drop since January. The weak reading reflects the June lockdowns in Victoria and New South Wales, both of which showed significant declines in retail sales. With some half of Australians currently under lockdown, July could also register a decline.

Is Aussie headed to 72-territory?

The Australian dollar is experiencing a nasty downturn, having plunged 2.2% in less than a week. Although the economy has recovered to pre-Covid levels, some institutions have downgraded growth for H2 of 2021. This will likely have a chilling effect on any plans at the RBA to tighten policy, which means that the struggling Aussie won’t be getting any support from the central bank.

The RBA minutes did not contain any surprises, although it was of interest to learn that the decision to taper the bond purchase programme from AUD 5 billion to 4 billion was hotly debated. There is a lesson here – the taper, which was a tightening of policy, lifted the Australian dollar. However, the rise was short-lived, as the RBA has remained dovish, even with the taper. Clearly, a taper does mean that a central bank has changed into a hawk; in the case at hand, the RBA said at its meeting that stimulus was still necessary and that rate hikes were a long way off, even while tapering at the same time. This means that even when the headlines are blaring about a central bank tapering, it’s critical for investors and traders to block out the noise and listen carefully to what policymakers are saying with regard to monetary policy.

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AUD/USD Technical

• AUD/USD is testing support 0.7319. Below, there is support at 0.7247
• There is weak resistance at 0.7358, followed by resistance at 0.7469

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