AUD/USD: Subpar Consumer Confidence Pushing Price Lower

The Australia Westpac Consumer Confidence Index fell 7%, the largest M/M fall since Dec 2011 as the index broke the 100.0 par level, indicating that most Australians surveyed were pessimistic about the economy. Chief economist Bill Evans believe that the decline is partly due to concerns over the recently announced budget. Readings was 1.8% higher in the post-budget period vs the pre-budget period due to bearish sentiment that were perpetuated via the media before the announcement. Once the budget was released, consumers saw that actual budget details were better than what was purported to be, and hence sentiment became more positive but nonetheless still significantly negative.

In line with what Evans has mentioned, one of the Consumer Confidence survey questions polled respondents on their opinion of the budget – with 44% saying that they will be worse off after the budget compared to 5.4% who said they will be better off. Evans further stated that consumer confidence was also shaken due to the surprise fall in AUD before and during the survey period. If this is true, then one can reasonably come to the conclusion that next month’s confidence data would be even worse as AUD/USD is continuing its journey southwards. Evans round up Westpac’s research statement by saying that the case for a rate cut as early as June is strong – fueling speculations for a rate cut.

Hourly Chart

AUD/USD went lower after the announcement. Whether traders were pricing in a dismal consumer confidence number or purely speculating further on Bill Evans’ assertion is not immediately clear, but bulls of AUD/USD would be glad that current price remain above the lows of Yesterday, when a less dovish than expected RBA minutes helped to push price higher but was ultimately rebuffed by the resurgence of USD strength. Currently, bears have their sights on 0.975 once again, and the ability for the aforementioned level to hold is paramount to prevent short-term bearish acceleration towards 0.97 and perhaps beyond.

Daily Chart

Longer-term chart is showing the potential of a bearish rejection pattern by the Channel. Price has formed 2 consecutive “uncertain” candlestick (spinning top pattern), with the more recent one more bearish than the one that precedes it. If we form another bearish candle today, the rejection pattern may be complete, put preferably price should move below 0.97 in order to fully invalidate the Morning Star bullish reversal pattern that happened a few days ago.

Stochastic readings suggest that the bullish cycle that was threatening to form may be snuffed out even before it is fully formed. Stoch readings are flattening and is closing in on the Signal Line, looking likely to form an interim peak within the Oversold region. This enhances the bearish rejection pattern and suggest that price may move back towards 0.97, but a breakout scenario is less certain, and hence traders may wish to seek further confirmation around that level to affirm that the bearish rejection can fully evolve into a bearish extension for the decline since April high.