Australian Retail Sales – will it affect the aussie’s bullish rally?
January 10, 2018 4:26 pm
The Australian dollar had a strong upside rally in the previous four weeks, driving the aussie/dollar pair to a new three-month high. A question is if the prices will continue to rise after the release of retail sales overnight and more importantly during the year as the Reserve Bank of Australia (RBA) remains concerned about consumption growth.
Retail sales for November are forecasted to ease to 0.4% m/m from 0.5% the previous month. In October the indicator increased by 0.5% versus markets estimates of 0.3%, while there was an upward revision to 0.1% in the prior month. Sales rose at the fastest pace since May in the previous release.
Turning to monetary policy, the RBA held the cash rate unchanged at a record low of 1.5% at its December meeting, as expected. The Bank has gone more than seven years without raising rates, the longest span since the official cash rate was introduced in 1990. However, wages need to tick higher substantially first, something that appears uncertain given there is still slack in the labor market before the RBA can begin hinting at rate hikes. The RBA is therefore likely to remain neutral in the coming months despite the current record low level of rates. The market currently sees a high probability for a quarter-point rate increase by the end of 2018, according to Australia’s overnight index swaps.
China’s economy, Australia’s exports to the China and iron ore are also crucial for the aussie. Chinese growth is set to show a slowdown, which could exert downward pressure on the aussie as export growth would likely take a hit. Australia’s government said on January 8 that it expects iron ore prices to average $51.50 a tonne this year, 20% lower than 2017 because of rising global supply and moderating demand from top importer China as its steel sector shrinks. “The iron ore price is expected to experience some ongoing volatility in early 2018, as the market responds to uncertainty regarding the impact of winter production restrictions on iron ore demand,” the Department of Industry, Innovation, and Science warned in its latest commodities outlook paper. This scenario could drive the Australian dollar lower during the year.
On the other hand, an optimistic hint by the RBA, a milder slowdown in China, and rising iron ore prices could push the currency further up. If the data on Thursday beat expectations, aussie/dollar could set its eyes on the 0.7980 resistance level if it jumps above the 0.7900 psychological level. It failed to beat the October top of 0.7895 when its recent rally became stuck at 0.7873. could create a downward pressure for the pair and would retest the 0.7730 support level in the daily timeframe.
It is worth mentioning that the price has been trading in an ascending move since January 2016, following the rebound on the 0.6830 barrier and a long-term upside movement may aim for the 0.8100 handle.
The Australian dollar had a strong upside rally in the previous four weeks, driving the aussie/dollar pair to a new three-month high. A question is if the prices will continue to rise after the release of retail sales overnight and more importantly during the year as the Reserve Bank of Australia (RBA) remains concerned about consumption growth.
Retail sales for November are forecasted to ease to 0.4% m/m from 0.5% the previous month. In October the indicator increased by 0.5% versus markets estimates of 0.3%, while there was an upward revision to 0.1% in the prior month. Sales rose at the fastest pace since May in the previous release.
Turning to monetary policy, the RBA held the cash rate unchanged at a record low of 1.5% at its December meeting, as expected. The Bank has gone more than seven years without raising rates, the longest span since the official cash rate was introduced in 1990. However, wages need to tick higher substantially first, something that appears uncertain given there is still slack in the labor market before the RBA can begin hinting at rate hikes. The RBA is therefore likely to remain neutral in the coming months despite the current record low level of rates. The market currently sees a high probability for a quarter-point rate increase by the end of 2018, according to Australia’s overnight index swaps.
China’s economy, Australia’s exports to the China and iron ore are also crucial for the aussie. Chinese growth is set to show a slowdown, which could exert downward pressure on the aussie as export growth would likely take a hit. Australia’s government said on January 8 that it expects iron ore prices to average $51.50 a tonne this year, 20% lower than 2017 because of rising global supply and moderating demand from top importer China as its steel sector shrinks. “The iron ore price is expected to experience some ongoing volatility in early 2018, as the market responds to uncertainty regarding the impact of winter production restrictions on iron ore demand,” the Department of Industry, Innovation, and Science warned in its latest commodities outlook paper. This scenario could drive the Australian dollar lower during the year.
On the other hand, an optimistic hint by the RBA, a milder slowdown in China, and rising iron ore prices could push the currency further up. If the data on Thursday beat expectations, aussie/dollar could set its eyes on the 0.7980 resistance level if it jumps above the 0.7900 psychological level. It failed to beat the October top of 0.7895 when its recent rally became stuck at 0.7873. could create a downward pressure for the pair and would retest the 0.7730 support level in the daily timeframe.
It is worth mentioning that the price has been trading in an ascending move since January 2016, following the rebound on the 0.6830 barrier and a long-term upside movement may aim for the 0.8100 handle.
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