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Aussie up after record retail sales

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With Australian retail sales up for a fourth consecutive month, the currency is making most of the move against a weaker USD.

As IGTV’s Jeremy Naylor explains AUD is up against EUR, JPY, GBP, among others, but with traders currently short USD, that is where most money is being made.





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Australian dollar slipped post GDP amid rising risks on several fronts

The Australian dollar is struggling despite strong GDP numbers; AUD had been rallying prior to the data but USD strength emerged and risks are swirling for AUD/USD.

Source: Bloomberg
Daniel McCarthy | Strategist, | Publication date: Wednesday 01 June 2022 13:05

The Australian dollar surprisingly gave up early gains and dipped after 4Q quarter-on-quarter GDP came in at 0.8% against forecasts of 0.7% and a previous 3.4%.

This made annual GDP to the end of March 3.3% instead of 3.0% anticipated and 4.2% prior. It reveals upward revisions to previous quarters.

Australia’s ASX 200 stock-index got a small bump up on the news after finishing -3% for the month of May.

Today’s figures come after yesterday’s local building approvals missed by a notable margin. They came in at -2.4% month-on-month in April instead of rising by 2.0% as expected.

The immediate reaction of AUD/USD appears to be more related to US dollar strength rather than AUD weakness. The Aussie is only mildly weaker against most other G-10 currencies.

AUD/USD short term chart

1654052448060.pngSource: TradingView

Naturally, AUD/USD is subject to external factors. The broad picture sees the Ukraine war, China’s zero-case Covid-19 policy and central bank tightening schedules as the main themes that the market is focused on for now.

The entire commodity complex is experiencing elevated prices due to scarcity created by the war in Ukraine and a resolution to the conflict does not seem apparent. This has not translated into a higher AUD/USD despite Australia’s trade balance continuing to improve.

Tomorrow we get the latest data for April and the market is forecasting AUD 9 billion trade surplus for the month. China’s zero-case Covid-19 policy continues to present risks to global trade.

The slight easing of restrictions in the last few days does little to allay fears that Chinese ports could easily be interrupted again. The market cannot currently see a way out of the pandemic for China if they persist in a zero-case policy when the rest of the world is seeing regular cases.

The US dollar has been gaining in the last few sessions as the chance of a September pause in the Fed’s rate hike path hit a few hurdles. Comments from Fed Governor Waller and Atlanta Fed President Bostic have intimated that inflation needs to be moving significantly south for a pause to happen.

Additionally, after a meeting with Fed Chair Jerome Powell, US President Joe Biden affirmed that the Fed should be respected and re-iterated its independence in its fight on inflation.

The market interpreted his comments to give the green light for aggressive rate hikes. Political commentator interpreted this as the President looking to share the blame for any impending slow-down in the economy.

In any case, for the Aussie from here, the focus is on tomorrow’s trade data but it would seem that it would have to be a stellar number to lift the currency.

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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