Aussie Turns Weak on Decline in Retail Sales

Aussie Turns Weak on Decline in Retail Sales

 
The AUDCHF pair has been range bound between 0.7580 and 0.7780 for the past two months. A sharp drop in the price of iron ore has turned the Aussie weak against other major currencies. However, the Swiss Franc also remains weak due to SNB’s verbal and physical intervention. Switzerland is also one of the few countries where negative interest rates prevail. Due to these reasons, so far, neither of the currencies was able to rally against the other. However, we expect the Aussie to begin declining against the Swiss Franc due to reasons given below.

Yesterday, Switzerland’s State Secretariat for Economic Affairs reported a decline in the unemployment rate to 3.1% in September, from 3.2% in the previous month. Analysts had expected the rate to remain stable at 3.2%.

The improvement in the Eurozone economy has considerably weakened the Swiss Franc in the recent past. During the September monetary policy meeting, the Swiss National Bank acknowledged the weakening of the Swiss Franc against the major currencies. The SNB is quite happy with the decline, as it would boost exports. However, investors are expected to use the opportunity to buy the currency in dips as experts anticipate North Korea to test another missile within the next 10 days to round off the celebrations of its 72nd anniversary of the founding of ruling workers’ party. A missile test would usually increase the demand for safe haven assets such as the Swiss Franc, Yen, and gold.

Currency strategists at Morgan Stanley has advised clients to sell the Aussie on the basis of a record household debt, sharp fall in the price of commodities, and a steep decline in August retail sales. It may be remembered that the Australian Bureau of Statistics reported a 0.6% decline in retail sales in August, compared with a 0.2% decline in the earlier month. It is the worst decline in the past four-and-a-half-years. Analysts had expected the retail sales to grow at a rate of 0.3% in August. Thus, weak economic data is expected to keep the Aussie weak, while a decline in the unemployment rate and geopolitical tensions favour strengthening of the Swiss Franc.

The AUDCHF pair has formed a double top at 0.7740. Technically, the RSI of moving average is also moving downwards. Thus, we forecast a decline in the currency cross.

AUDCHF - Technical Analysis - 11th October 2017

In the currency market, we are considering opening a short position in the AUDCHF pair near 0.7600. To limit risk, we will place a stop loss order above 0.7700. If the pair declines as projected, then we will close the trade near 0.7370.

Likewise, we wish to purchase a put option to increase the returns from the impending downtrend. In a case we go ahead with the trade, the contract will be purchased when the pair trades near 0.7600. Another important condition to satisfy is the option should not expire before October 19th.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.


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