AUD/USD: Australian consumers optimism jumped in October survey
Macroeconomic overview:
- A measure of Australian consumer sentiment jumped to its highest this year in October as an outbreak of optimism about the economic outlook and family finances overcame months of caution. The index reading of 101.4 meant optimists outnumbered pessimists for the first time since November last year. The pick-up will be a relief to policy makers after a shock slide in retail sales for August sparked concerns that consumers were going on strike.
- While employment growth has accelerated markedly this year, it was not accompanied by a revival in wages, clouding the outlook for household incomes.
- The better mood could be positive for the struggling retail sector, with the survey's index of whether it was a good time to buy a major household item rising 3.7% in October.
- The outlook on the economy improved markedly with the index for the next 12 months up 7.1%, and that for the next five years rising 1.4%.
- The survey's measure of family finances compared to a year ago edged up 1.0% in the month, but was still down 6.1% on October last year. Still, the measure of finances over the next 12 months fared better with an increase of 4.2% from September.
- The improved numbers reinforced market expectations the next move in interest rates would be upward, albeit not for some time yet. A hike in the 1.5% cash rate is not fully priced in until October next year. Still, local bond yields seemed attractive enough to investors at home and abroad. A new issue of AUD 3.5 billion in government 2022 bonds sold on Wednesday was well subscribed, drawing bids worth AUD 12.9 billion. Australian 10-year bonds pay 2.84%, a premium of 48 basis points over comparable U.S. debt.
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Technical analysis and trading signals:
- Daily RSI is biased up and the AUD/USD broke above 7-day exponential moving average today. We are waiting for a close above that level now.
- We keep our bid at 0.7730 and will consider raising it if we see a close above 7-day ema at the end of the day.
