Aussie yawns after retail sales jump

The Australian dollar continues to have a quiet week and is unchanged in Tuesday trade. In the European session, AUD/USD is trading at 0.7170.

Australia’s retail sales soar

Australian consumers opened their purse strings in November, as retail sales jumped 7.3%, well above the consensus of 3.6%. This follows a gain of 4.9% in October, which suggests that the economy will show a strong recovery for the fourth quarter of 2021. The jump in retail sales resulted from the easing of Covid lockdowns as well as well as strong spending in the pre-Christmas period.

Despite the rosy retail sales numbers, the Australian dollar did not budge, as investors remain concerned over the explosion in Omicron infections. Australia is reporting over 1 million infections, as businesses are grappling with staff shortages due to sickness or isolation rules. So far, the government has avoided new lockdowns, but if the infection rates continue to rise, lockdowns could be reimposed which would hamper economic activity.

Early in the New Year, the markets remain focused on high inflation and the series of rate hikes that are widely expected this year. Although projections indicate that inflation will ease back to the 2% target, Wall Street is nervous that the Fed could press that rate trigger as early as March, when it winds up its asset purchase programme. Following the mixed US employment report on Friday, which included a soft NFP but strong wage growth and a drop in unemployment, there are expectations for three and even four rate hikes in 2022. The markets are clearly jittery about rate hikes, but market moves in January are often erratic, so things should cool down once we move further into 2022.

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AUD/USD Technical

• There is resistance at 0.7263 and 0.7343
• AUD/USD has support at 0.7116 and 0.7049

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