The Australian dollar is steady after a five-day slide, which saw the currency fall by 3.5% during that period. In the European session, AUD/USD is trading at 0.6471, up 0.28% on the day.
China retail sales beats expectations
China retail sales, a key indicator of domestic consumption, jumped 4.8% y/y in October, up sharply from 3.2% in September and above the market estimate of 3.8%. This was the fastest pace of growth since February. Retail sales received a boost from a week-long holiday an significant government stimulus measures in September to boost the struggling economy. This included a cut in interest rates and easing restrictions on borrowing for purchases of stocks and houses. These measures are unlikely to be sufficient to turn the economy around, and Bejing is under pressure to take further moves, such as additional monetary easing.
Good news in China is music to the ears of Australian exporters, as China is Australia’s largest trading partner. If Chinese demand for Australian goods increases, it should boost the Australian dollar, which has been hammered by the US dollar and has plunged 6.4% since October 1.
The Reserve Bank of Australia has held its cash rate for 4.35% for eight straight meetings and has become an outlier among the major central banks, most of which have cut rates in response to lower inflation. The RBA is under pressure to cut rates as inflation fell in the third quarter to 2.8%, down from 3.8% in Q2, its lowest rate since the first quarter of 2021.
The RBA noted at its November meeting that headline inflation has declined considerably but that underlying inflation remains too high. The RBA holds its final meeting of the year on Dec. 10 and is widely expected to maintain rates. If inflation continues to fall, we can expect a rate cut early in 2025.
The US dollar has looked sharp this week against the major currencies and could add to its gains if today’s retail sales report beats expectations. The markets expect October retail sales to rise to 1.9% y/y, up from 1.7% in September. Monthly, retail sales are expected to inch lower to 0.4% from 0.3%.
AUD/USD Technical
- AUD/USD is testing resistance at 0.6465. The next resistance line is 0.6488
- 0.6431 and 0.6408 are the next support levels
