Australian dollar dips ahead of retail sales

The Australian dollar is coming off a rough week and is under pressure on Monday. AUD/USD was down as much as 0.50% earlier but has recovered these losses and is unchanged on the day at 0.6717.

US nonfarm payrolls beat forecast

US nonfarm payrolls, released on Friday, accelerated in December and beat the forecast. The economy added 216,000 jobs in December, compared to November’s downwardly revised 173,000 and above the estimate of 170,000. The unemployment rate remained at 3.7%, below the estimate of 3.8%. As well, wage growth rose 0.4% m/m and 4.1% y/y in December, higher than the estimates of 0.3% and 3.9%.

The Federal Reserve’s aggressive rate tightening has cooled the US economy, but job growth has remained resilient. Wage growth rose in December, a reminder that although inflation has been falling, inflationary pressures in the labour market remain too high and are incompatible with the Fed’s 2% inflation target. The markets responded to the employment report by lowering the odds of a March rate cut to 62%, compared to 68% just prior to the employment report.

The Fed is finally on the rate-cutting bandwagon but the minutes of the December meeting failed to provide any details about the timing of rate cuts. The Fed may well decide to prolong the pause in rates until the second half of the year unless there is a significant drop in inflation or unforeseen weakness in the US economy. Fed Chair Jerome Powell does not seem in any rush to start lowering rates and an initial cut in March could be wishful thinking by the markets.

Australia’s retail sales are expected to show a strong turnaround in November after a 0.2% m/m decline in October. That was the first decline in four months may well have been a blip due to customers waiting for Black Friday in November. The estimate for November stands at 1.2%, which would be the strongest reading since January.

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AUD/USD Technical

• AUD/USD tested support at 0.6702 earlier. Below, there is support at 0.6655
• There is resistance at 0.6762 and 0.6809

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