Australian jumps after soft US retail sales

The Australian dollar has posted strong gains on Tuesday. AUD/USD is trading at 0.6646 in the North American session, up 0.50% on the day. The Aussie shrugged after the Reserve Bank of Australia’s decision earlier today but climbed after US retail sales were weaker than expected.

Reserve Bank holds rates at 4.35%

In a widely expected decision, the RBA stayed on the sidelines and held rates at 4.35% for a fifth straight time. The rate statement and follow-up press conference from Governor Bullock were hawkish, although the Australian dollar showed little reaction in the aftermath of the decision.

The rate statement indicated that policy makers are frustrated with high inflation. The RBA noted that inflation remained above target and was “proving persistent” and said it “will do what is necessary” to bring inflation back down to target. Bullock has warned that rate hikes remain on the table, and the statement reiterated this stance, saying that the path of interest rates “remains uncertain and the Board is not ruling anything in or out”.

In her press conference, Bullock said that the central bank remains “vigilant to the upsides risks to inflation” and that rate hikes were discussed at the meeting but rate cuts were not.

US retail sales miss forecast

US retail sales improved in May with a small gain of 0.1% m/m. This beat the April reading of -0.2% but missed the market estimate of 0.2%. Yearly, retail sales rose 2.3%, down from a revised 2.7% in April and below expectations of 2.8%.

Consumer spending is slowing and that is good news for the Federal Reserve, which wants to see the economy continue to cool before cutting interest rates. The markets have priced in a 67% probability of a rate cut in September, up from 62% prior to the retail sales report.

AUD/USD Technical

• AUD/USD is testing resistance at 0.6632. Above, there is resistance at 0.6688
• 0.6559 and 0.6503 are the next support levels

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