AUD declines from a four-month high following improved US retail sales

Daily Currency Update

The Australian dollar (AUD) extended its upward trend for the second consecutive day on Thursday, marking its strongest performance in four months following the release of relatively positive employment data from Australia. The AUD/USD pair gained traction, reaching a peak of 0.67285, supported by a notable decline in the US dollar (USD) after the Federal Reserve (Fed) meeting, where interest rates were maintained at 5.5%, in line with expectations. There is now an expectation in the markets for three rate cuts in 2024. Fed Chair Jerome Powell adopted a dovish stance, contributing to a decrease in Treasury bond rates by refraining from declaring victory over inflation.

The US Dollar Index (DXY) is under pressure to retreat following the announcement of weak Producer Price Index (PPI) data for November on Wednesday. Data from the US Bureau of Labor Statistics revealed that the Core PPI came in at 2.0%, slightly below the anticipated 2.2%, while the PPI (YoY) expanded by 0.9% instead of the predicted 1.0%. Despite substantial discounts, the Christmas shopping season began briskly, leading to a surprising increase in US retail sales for November. This unexpected growth is likely to sustain a modest economic expansion in the current quarter, alleviating concerns of a recession.

According to the ANZ-Roy Morgan weekly poll, Australian Consumer Confidence rose from 76.4 to 80.8 in the previous week. The Westpac Consumer Confidence report for December indicated a growth of 2.7%, rebounding from a decline to 2.6% in November. With revenues surpassing projections, the Australian government anticipates a significant improvement in the budget's bottom line for the current year. Labor Treasurer Jim Chalmers' mid-year economic and fiscal outlook (MYEFO) predicts a budget deficit of approximately AUD 1.1 billion for the fiscal year ending June 2024, a substantial decrease from the AUD 13.9 billion projected in May.