AUD hits 3-week high, retail sales climb

The Australian dollar is showing strong gains today. In the European session, AUD/USD is trading at 0.7145, up 0.66% on the day.

Australia released retail sales earlier today, salvaging what had been a lacklustre week for Australian releases. April retail sales were up 0.9%, just shy of the 1.0% forecast. This marked a fourth straight month of sales gains, which points to resilient consumer spending in the face of rising inflation, which hit 5.1% in the first quarter.

Many businesses are planning to raise prices, raising the concern that inflation is broadly based across the economy. This has raised concerns that consumer spending, although currently on an upswing, will not be sustainable if inflation doesn’t start to ease soon. As well, the RBA, which has embarked a rate-tightening cycle, will have a difficult task reducing inflation and inflation expectations if inflationary pressures are broad-based.

The US economy contracted more than expected in Q1, although market reaction was muted. Second-estimate GDP came in at -1.5% QoQ, shy of the estimate of -1.3% and revised downwards from the initial estimate of -1.4%. Growth in Q1 was hampered by a surge in Omicron as well as the Ukraine war. Investors took the news in stride, and appear to be counting on a rebound in the second quarter. Still, US growth is likely to be moderate and much lower than the sharp expansion we saw after the US economy reopened.

One bright spot was solid consumer spending, which remains strong in the face of spiralling inflation. Consumer spending, as gauged by PCE expenditures, rose 3.1% in Q1, up from 2.7% prior. The markets are keeping a close eye on Personal Spending and Personal Income, which will be released later today. As well the PCE Price Index, which is the Fed’s preferred inflation gauge,  will be released later today.

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AUD/USD Technical

• 0.7118 is a weak resistance line. Above, there is resistance at 0.7196
• There is support at 0.6996 and 0.6918

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