Australian Dollar Volatility Remains In-Check, Despite Big Beat On Retail Sales Data. Where to for AUD/USD?

Australian Dollar, AUD/USD, Retail Sales, RBA, ASX 200 – Talking Points

  • The Australian Dollar yawned at a large beat on October retail sales data
  • The RBA will look closely at the numbers, but interest rate markets are unfazed
  • AUD/USD remains vulnerable at it is fighting a strong USD. Will it break lower?

The Australian Dollar had weakened going into the data as risk aversion took hold across the board today. Retail sales for the month of October came in at 4.9%, well above forecasts of 2.2% and the previous month’s 1.3%. AUD/USD has since found some support, but market reaction has been tame.

October saw the easing of Covid restrictions in the two most populous states of New South Wales and Victoria and this clearly impacted economic activity. The RBA will be combing through the components of the data very carefully as this is the first read of how the country is fairing economically post lock-down.

The RBA have previously said that they see the current high inflation as temporary. The latest data on prices saw 3rd quarter headline inflation came in at 0.8% q/q against expectations of 0.8%. The annual headline rate came in 3.0% y/y versus 3.1% forecasted.

The RBA’s preferred measure, trimmed mean, printed at 0.7% q/q instead of 0.5% anticipated, which made the annual read 2.1% y/y against 1.8% expected.

3rd quarter GDP, due for release on December 1st, is likely to be a soft number as Covid-19 restrictions were at their most severe. With lockdown restrictions having now eased, economic activity for the 4th quarter could be of more importance to the RBA going forward.

The RBA next meet on Tuesday 7th December.

Prior to the data, the S&P/ASX 200 was already lower and was little changed after the data, trading at 7.261. Similarly, bonds markets were little moved with Australian 10-year government yields remaining steady at around 1.81%. The spread over US 10-year government yields remains at 0.22%.

It would appear that AUD/USD is likely to be vulnerable to external factors. Bond markets, both domestically and in the US, might be a catalyst for the currency to move, particularly if the spreads between the two widen or narrow significantly. Fed speakers will be a focus for markets as their path to reducing stimulus remains opaque.

Commodities may also play a role as iron ore continues to languish, but energy commodity prices remain highly volatile.

AUD/USD AND AU-US 10 YEAR CHART

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

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