AUD/USD: Cracks in Australia’s business outlook are starting to show

• The latest NAB business survey revealed a sharp slowdown in hiring, new work drying up and weaker price pressures
• RBA policymakers watch this survey particularly closely given its long history
• AUD/USD dip buying preferred near-term

Australia’s business outlook darkening

Cracks in Australia’s business outlook are starting to show, providing welcome relief to policymakers at the Reserve Bank of Australia (RBA) who sounded increasingly uneasy about the trajectory for inflation when delivering the May interest rate decision last week.

The latest NAB Business survey revealed a big slowdown in hiring in April, with new orders also declining at the fastest pace in several years. Importantly, the weakness coincided with a noticeable deceleration in upstream and downstream price pressures with labour costs, purchase costs and retail prices growing at a substantially slower quarterly pace than in the prior survey.

Source: NAB

“There was some further improvement in the pace of cost growth in April, as well as a step down in the pace of retail price growth after elevated readings in the first few months of the year,” said NAB Group chief economist Alan Oster. “That is an optimistic sign for the prospects of some easing in inflation in Q2, though we will have to wait see how this evolves over the coming months.”

While the NAB survey can be volatile month to month, and a measure of opinions rather than actual economic activity, the results will likely be welcomed by the RBA who are known to watch this release carefully when considering monetary policy settings. If reflective of what’s happening in the economy, it may build confidence that weaker household demand is adding to disinflationary pressures, allowing the bank to placing greater emphasis on the trajectory for economic activity.

AUD/USD coiling in pennant formation

The data has contributed to weakness in AUD/USD on Monday, seeing the pair move further away from the multi-month peak hit last week.

AUD/USD sits a bull pennant formation on the four hourly chart, coiling up in an ever-tightening range. While price momentum is to the downside, should the pattern play out, it suggests dip buying could prove to be more fruitful than selling rallies in the near-term.

The pair found buyers at .6586 earlier in the session, the intersection of uptrend and horizontal support. Should the price return towards that level, traders may want to consider initiating longs with a stop loss order below for protection. Above, the pair struggled to break downtrend resistance at .6620 late last week, making that the first upside target for longs. Beyond, .6640 and .6668 are the next levels to watch.

Should .6586 give way, support may be found below .6560.

-- Written by David Scutt

Follow David on Twitter @scutty

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