Sun. Dec 5th, 2021

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

  • The Australian dollar yawned with a big blow on October retail sales data
  • The RBA will look closely at the figures, but the fixed income markets are pristine
  • AUD / USD remains vulnerable as it fights a strong USD. Will it crack lower?

The Australian dollar was weakening relative to the data as risk aversion took hold across the board today. Retail sales for the month of October reached 4.9%, which is well above the forecasts of 2.2% and the previous month’s 1.3%. The AUD / USD initially found some support, but risk assets such as the Aussie remain under pressure.

In October, Covid restrictions were eased in the two most populous states, New South Wales and Victoria, and this clearly affected economic activity. The RBA will review the components of the data very carefully as this is the first reading of how the country is doing financially after lock-down.

The RBA has previously said they see the current high inflation as temporary. The latest data on prices saw total inflation in the third quarter of 0.8% q / q against expectations of 0.8%. The annual overall interest rate came in at 3.0% y / y against 3.1% expected.

RBA’s preferred target, trimmed mean, printed at 0.7% q / q instead of 0.5% expected, making the annual reading 2.1% y / y against 1.8% expected.

3rd quarter GDP, released on December 1stst, is likely to be a low figure as Covid-19 restrictions were at their most severe. As lockdown restrictions have now been eased, the economic activity for the 4th quarter could be of greater importance to the RBA in the future.

The RBA will meet next Tuesday, the 7thth December.

Before the data, the S & P / ASX 200 was already lower and had changed slightly after the data, trading at 7,261. Similarly, bond markets were slightly volatile and Australian 10-year government yields remained stable at around 1.81%. The spread over US 10-year government interest rates remains at 0.22%.

It appears that AUD / USD is likely to be vulnerable to external factors. The bond markets, both in the domestic market and in the US, can be a catalyst for the currency to move, especially if the spreads between the two widen or narrow significantly. Fed speakers will be a focus for markets as their path to stimulus reduction remains opaque.

Raw materials can also play a role as iron ore continues to decline, but energy raw material prices remain very volatile.

AUD / USD AND AU-US 10 YEARS JAR

AUDUSD AU-US 10 YEAR CARD

Diagram ccovered in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comment box below or @DanMcCathyFX on Twitter

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