Aussie Slips to Four-Month Low as Retail Sales Drop Unexpectedly

  • Retail report and resource exports point to low 1Q GDP: Nomura
  • Expectations of a June Fed hike to aid USD/JPY: Ueda Harlow

The Australian dollar slipped to a four-month low after disappointing retail sales data further weakened the outlook for the nation battling a slump in prices of iron ore.

The Aussie retreated for a second day as a report showed retail sales surprisingly declined in March. Prime Minister Malcolm Turnbull is set to deliver the annual budget at 19:30 local time Tuesday. The U.S. dollar weakened against most major peers after Treasury yields fell.

“The first-quarter retail sales volumes were also weaker, rising by just 0.1 percent quarter-on-quarter,” said Peter Dragicevich, a foreign-exchange strategist at Nomura Singapore Ltd. “When added to the pull-back in resource export volumes, the first quarter is shaping up to be a low GDP print. Overall, our bias continues to be for the Australian dollar to underperform on the crosses” such as against the euro and the pound, he said.

Speeches from Federal Reserve officials Eric Rosengren and Robert Kaplan this week may yield further direction for the greenback, as traders seek more clues on the interest-rate outlook after a strong U.S. jobs report last week.

  • AUD/USD declines 0.4% to 0.7361; March retail sales drop 0.1% m/m vs estimate for 0.3% rise
    • AUD/USD sell-stops for momentum accounts are being absorbed by local corporates, says Asia-based FX trader; large offers layered 0.7390/0.7400
    • Soft retail spending is due to low wage growth and high debt-servicing requirements, says Richard Grace, strategist at Commonwealth Bank of Australia; “The implications are not dramatic because this trend of price discounting and soft retail activity has been with us for some time now.” Adds that AUD/USD is likely to recover, but “not in a hurry”
    • AUD/NZD down 0.4% to 1.0650 in 7th day of losses; RBNZ reviews policy Thursday
  • USD/JPY little changed at 113.21 after gaining 0.7% in last two days
    • Exporter offers in USD/JPY approaching 113.50 are at risk of being taken out by real money funds who have been buying over the past 12 hours, says Asia-based FX trader
    • “Expectation of the Fed’s rate hike at the FOMC meeting in June could keep USD/JPY supported,” Naoto Ono, analyst at Ueda Harlow in Tokyo, writes in note; says pair may face resistance around 113.40, which is a 50% retracement between a high of 118.66 reached on December 15 and a low of 108.13 seen April 17
  • Bloomberg Dollar Spot Index gains less than 0.1%

— With assistance by Chikafumi Hodo, and Michael G Wilson

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