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Disappointing Retail Sales print pulls Aussie lower

AUD - Australian Dollar

The Australian Dollar finished off the week slightly lower from Mondays open despite a strong push midweek towards 79 US cents.

The latest Retail Sales print on Friday was a disappointing result, extending losses for the local currency to intraday lows of 0.7724. Retail turnover was down 1.1%, well short of an expected increase of 0.6% in the month of February due to short term lockdowns in both Western Australia (down 4%) and Victoria (down 6%).

The Australian Dollar closed at 0.7737, lower on the day as the Federal Reserve surprised the market by announcing the end of capital level rules during the pandemic crisis era. The move allowed banks to exclude treasury and deposits on their leverage ratio which will expire the end of March. Bank equities were lower on the news, pulling riskier assets with it.

With little domestic data on the horizon the Aussie Dollar will take its cues from offshore developments this week. The Australian Dollar opens at 0.7712. We expect support levels to hold onto moves approaching 0.7670, while any upward push will likely meet resistance at 0.7770.

Key Movers

The announcement of higher inflation expectations by Federal Reserve Chairman Jerome Powell this week and US treasuries continuing to climb higher, aided in the US Dollar Index (DXY) climbing to a weekly high of 92.16 on Friday evening. 10-year treasury notes jumped to 1.75% this week with Jerome Powell deciding to end the SLR exemption.

The USD/JPY cross was little moved, closing at 108.85 as Bank of Japan kept interest rates on hold at -0.1% as expected with minimal change to their currency policy framework. The 10-year Japanese bond yield target was widened to +/- 25 basis points (Previously 0.2%) and will buy equities up to a maximum of ¥12tn a year.

Both the EUR and GBP finished unchanged for the weekend despite both initially rallying on Wednesday due to the Federal Reserve’s commitment to a dovish monetary policy. The Great British Pound fell 0.47% on Friday following the news that Bank of England persevered its dovish tone and did not expect interest rates to be increased till inflation started rising. This Friday kicks off the latest European Summit with markets hoping for an update on the €672.50bn Recovery and Resilience Facility to support the EU region during the pandemic crisis.

All eyes will be on the market movements following Biden's administrations first meeting with China in Anchorage on the weekend which was described as “tough and direct”. Several FOMC members along with Federal Jerome Powell are due to make speeches this week along with the Final GDP figures in the United States for the quarter.

Expected Ranges

AUD/USD: 0.7670 - 0.7770 ▼

GBP/AUD: 1.7800 - 1.8100 ▼

AUD/NZD: 1.0750 - 1.0850 ▲

AUD/EUR: 0.6460 - 0.6520 ▼

AUD/CAD: 0.9620 - 0.9720 ▼