Aussie rebounds on strong retail sales

The Australian dollar has started the week with gains. In the European session, AUD/USD is trading at 0.7091, up 0.26% on the day.

It was shaping up to be a banner week for the Aussie, which recorded gains every day of last week until a bump at the end of the week. AUD/USD plunged 0.90% on Friday, as the US nonfarm payrolls shocked the markets with a massive gain. Still, the Australian dollar posted a strong gain of 1.16% last week.

Australian retail sales surge

The Aussie has bounced back on Monday, boosted by an excellent retail sales report for Q4. Retail sales surged 8.2%, above the consensus of 7.8% and ahead of the Q3 read of -4.4%. The end of the Covid-related lockdowns and the holiday season brought out consumers who were in a spending mood. The upswing in consumer spending has raised expectations that the RBA will hit the rate trigger in the second half of the year, perhaps as early as August.

At last week’s RBA meeting, Governor Lowe said that a hike could be a year away or even longer, but the markets aren’t buying it. Lowe is clearly in no rush to raise rates and may not have abandoned the view that inflation is transient and will ease in the near term. The markets, in contrast, are more hawkish and feel that high inflation will prompt the RBA to raise rates in the second half of 2022.

The US nonfarm payrolls was an absolute shocker, with a gain of 467 thousand jobs in January. Many analysts had projected a negative print, and the consensus of 125 thousand showed that expectations were quite low. With inflation at 40-year highs, wage pressures are rising. Average hourly earnings climbed 5.7% in January y/y, as workers seek higher wages due to the rise in the cost of living. The NFP report will raise expectations that the Fed will have to do more in order to stamp out high inflation.

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AUD/USD Technical

• AUD/USD faces resistance at 0.7168 and 0.7258
• There is support at 0.6987 and 0.6896

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