Australian dollar edges higher as retail sales rebound falls short

The Australian dollar has stabilized on Thursday after sustaining sharp losses a day earlier. In the North American session, AUD/USD is trading at 0.6512, up 0.26%.

Australian retail sales rebound but miss estimate

Australia’s retail sales started the year on the right foot but were not as strong as expected. January retail sales rose 1.1% m/m, a strong turnaround from a disastrous December, which saw a decline of 2.1%. The upturn was felt across the economy, as all retail industries posted gains.

Consumer spending has been showing sharp swings as shoppers brought forward spending to November and took advantage of discounts during Black Friday. This led to a lull in December and retail activity increased in January.

The markets had expected a more robust rebound from retail sales, which fell well short of the market estimate of 1.5%. Consumers are still being squeezed by the cost-of-living crisis and high mortgage payments as the RBA is yet to lower elevated interest rate levels.

The RBA has raised rates only once since June 2023 and hasn’t ruled out rate hikes, although the markets  believe that tightening cycle is over and have priced in rate cuts later this year. The RBA is unlikely to consider lowering rates until it is convinced that inflation will continue to fall or the strong labour market shows signs of cooling. The next meeting is on March 18^th and the RBA is widely expected to maintain rates and continue its “higher for longer” stance.

Federal Reserve officials must be chuckling to themselves as market pricing for Fed rate cuts has fallen sharply and is currently in line with the Fed projection of three rate cuts this year. The markets were exuberant in December when the Fed jumped on the rate-cut bandwagon and priced up to six rate cuts in 2024, starting in March. These expectations have steadily fallen as the US economy has remained robust and the Fed has sounded cautious about rate cuts. A rate hike in March is off the table and the markets have circled July or September as likely dates for an initial rate cut.

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AUD/USD Technical

• AUD/USD is putting pressure on resistance at 0.6526. Above, there is resistance at 0.6599
• 0.6487 and 0.6453 are providing support

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