Feel like trading news reports before the big NFP release on Friday? If you do, then you might want to try your hand at trading Australia’s retail sales release.
Here are three things you need to know before you trade the report!
A lot of Aussie traders wait for it
Consumer spending accounts for roughly 54% of Australia’s GDP. An increase in local consumption tends to encourage businesses to step up their production to meet rising demand, eventually translating to a pickup in hiring.
Better employment conditions are good for consumer confidence, which then keeps spending and growth supported.
On Thursday at 1:30 am GMT (that’s late Wednesday for U.S. traders out there), Australia will print its retail trade numbers.
The report measures the sales of retail goods and services and is released by Australian Bureau of Statistics (ABS) 30 days following the end of the reporting month.
Actual growth tends to miss market expectations
As you can see, retail sales in Australia has missed market expectations in four of the last five releases. Meanwhile, annualized growth –which clocked in at 2.5% in March – has also declined for five consecutive months since rising to 3.3% in October 2016.
The trend isn’t good for the RBA, which is already worried about the declining household savings ratio. If April’s retail sales once again misses analysts’ estimates, then we might see more intraday losses for the Aussie.
Back in April, AUD/USD fell by at least 40 pips from the release up to the start of the London session. The pair also remained near its post-retail sales release lows after a bit of action during the U.S. session.
Almost the same thing happened in May. AUD/USD popped up some until a worse-than-expected release sent it 60 pips down by London session open. And much like in the April release, the pair also more or less stayed down until the end of the day.
Tips and tricks
Retail purchases in Australia are expected to have risen by 0.3% for the month of April following a 0.1% slip in March.
If the last two releases are any indication, the Aussie will likely have a direct correlation with the release.That is, a worse-than-expected reading tends to drag AUD/USD lower while strong figures tend to push it higher.
This means that the challenge is in timing your trade exits. As you can see above, the moves also only last until around the start of the London session even though there were no new catalysts in the last two releases.
One good strategy would be to trade in the direction of the report and take profits before the London session begins.
Or, if you’re trading in the direction of the pre-report intraday trend and don’t mind the risk, then you can also opt to adjust your risk exposure and hold on to your position until the end of the day.
In any case, make sure you practice good risk management habits when executing your plans!