The Australian Dollar fell after retail sales and construction data for May were weaker than expected. On the other hand, positive employment and manufacturing data from the US strengthened the US Dollar. Federal Reserve Chair Powell advised waiting to see the effects of inflation before changing interest rates. Markets are now focusing on upcoming US employment data. From a technical standpoint, the AUS/USD pair may be forming an “Evening Star” pattern, hinting at a possible shift in trends. The key support level to watch is 0.6550.

Key Drivers Of Dollar Movement

Important Australian data includes Building Permits and Retail Sales, which significantly influence the movement of the Dollar. Retail Sales, which represent 80% of total retail activity, are a critical indicator of consumer spending that affects inflation, GDP, and the decisions of the Reserve Bank of Australia. Monthly Retail Sales data is crucial for assessing economic health and can impact the value of the AUD. To ensure accuracy, forward-looking indicators adjust for any COVID-19-related distortions. The disappointing Retail Sales figures, along with recent declines in construction, indicate that domestic demand in Australia is lacking. It seems consumers are hesitant, likely due to high interest rates and increasing costs, which may also dampen confidence. Consumer behavior is essential because it directly influences the forecasts of the Reserve Bank, particularly regarding inflation risk and slower household spending. Across the Pacific, the situation is quite different. Strong employment numbers and unexpected resilience in US manufacturing have highlighted the strength of the American economy, boosting the US Dollar. Although Powell stated that rates will not change hastily and that they need “more time” to evaluate inflation, recent economic data does not indicate an urgent need for easing. The outlook suggests a more cautious hold rather than a shift in policy. From a technical viewpoint, the “Evening Star” pattern observed on the AUD/USD daily chart is significant. For those monitoring patterns, it often reflects weakening upward momentum. Coupled with resistance near 0.6650 and increasing pressure below 0.6550, the outlook appears negative. Breaking below 0.6550 would open previous demand zones, complicating things further.

Potential Market Movements

In the short term, upcoming domestic data releases will be crucial, especially if they exceed expectations. Building Permits and updated Retail Sales data may offer opportunities for revaluation if indicators start to suggest stronger investment or consumption recovery. However, with inflation still present and the RBA’s cautious stance known, only significant surprises are likely to elicit a strong market response. We are closely monitoring interest rate differentials, particularly the pace at which the Fed and RBA move. This macroeconomic divergence continues to influence market movements. Australia may be at peak tightening, while the US hasn’t shown any signs of easing yet. As a result, the narrative for the Aussie remains weak in comparison. For traders focused on price movement, we will pay attention to volume profiles around 0.6550 and 0.6480, as selling pressure often increases when there are no remaining bids. Any strong bounce from these levels would require an unexpected catalyst, so traders need to be adaptable and ready for volatility around data releases. Additionally, watching revisions to previous economic data can provide early signals. The last revision to Retail Sales, despite being technical, shifted short-term market sentiment. Focusing not just on the headline figures but also on the seasonal adjustment methods—especially as pandemic-related fluctuations diminish—can offer clearer insights into true consumer strength. Therefore, if the market tests resistance around 0.6650, it will need support from improved domestic data and possibly a miss in upcoming US data. Otherwise, the downward trend is likely to continue. Create your live VT Markets account and start trading now.

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