Australian Dollar Pops as Retail Sales Best in Three Years

[B]- Australian Dollar: Retail Sales fuel gain

  • Japanese Yen: motionless for 2nd day in a row
  • Euro: Industrial Production misses estimates
  • US Dollar: Wholesale Sales and Inventories on tap
    [/B]

Australian Dollar Pops as Retail Sales Best in Three Years
Australian Retail Sales printed much better that expected, rising 1.1% vs. 0.5% forecast and fueled a rally in the Aussie that took the currency above the 8300 level for the first time this week. Retail Sales rose at the strongest annual pace since 2004 with all seven components of the index showing an increase. The release shows that consumer demand in Australia spurred by a very strong labor market and seemingly boundless appetite by China for the country?s mineral resources, remains remarkably strong.
In fact the increase in March was the best monthly showing in 11 months and put the idea of another possible rate hike by the RBA right back on the table. The country has now enjoyed 24 consecutive quarters of positive growth which has translated into a budget surplus in excess of 10 Billion AUD and projected tax cuts of more than 30 Billion AUD over the next four years. Some analysts believe that the simulative effect of this budget bonanza may require further tightening by the RBA especially if tomorrow?s employment figures continue to surprise to the upside. In short, only two weeks after disappointing inflation data soured sentiment on the Aussie, the currency is back in vogue by carry traders as the FX market once again begins to price in rate hikes that could take the yield on the unit to 6.5%
The EURUSD however, was pummeled thorough out the night, first on heavy selling by Central Banks above the 1.3600 level and then on worse than forecast results in German Industrial Production data. After yesterdays, very strong German Factory orders release the market was primed for solid gains in Industrial Production. While the report did register a 7.7% year over year gain, the month over month figures showed no improvement suggesting that despite the vaunted efficiency of Euro-zone?s biggest economy, exchange rates are beginning to exert a drag on export demand.
Furthermore, as we have repeatedly stated - although the fundamental news continues to favor the euro, market positioning does not. As our technical analyst Jamie Saettele wrote yesterday, "Commercial hedgers? buying is at the highest level since 12/12/2006 - (at that time) the USD index had bottomed a week before. If a multi-week low is not already in place, then one will likely be put in place either this week or next. " With EURUSD overbought, it will take progressively more bearish US economic news to move the pair above the 1.3700 figure.