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Strong Retail Sales Read Sees Aussie Rise

By OFX

The AUD has started the week strongly, surging more than 1% against its US counterpart on the back of some strong domestic data on Monday and an improvement in broader global risk sentiment. The story was largely retail sales driven however the commodity linked currency also found support on the back of rising copper and gold prices. The AUD/USD rallied to intraday highs of 0.7668 before consolidating around the 0.7645 handle as the USD seemed to trim losses. The AUD/NZD pair also preserved the day’s earlier gains, ranging sideways between 1.0860 and 1.0890

Taking a closer look at yesterday’s impressive retail sales numbers, the seasonally adjusted 0.4% read comfortably surpassed market expectations which were pricing an increase of just 0.3%. The bulk of the increases appear to be linked to abnormally warm weather in the month of April, with spending in restaurants, cafes and fast food outlets outweighing sharp declines in apparel and department store sales. Although many economists are still bearish on whether the recovery can be sustained when underlying conditions such as low wage growth continue to stretch household budgets, the strong rebound is a supportive indicator leading into tomorrow’s GDP release.

Attentions now turn to today’s RBA statement with Australia’s central bank expected to maintain it’s monetary policy stance, keeping rates on hold at 1.5%. Whilst this continuation will be of no surprise to markets, traders will be looking for any hawkish surprises in tone that could provide the local currency with further upside . From a technical perspective, resistance is seen near daily highs of 0.7668 followed by the psychological 0.7700 handle with downside risks appearing to be well supported at levels nearer to 0.7605.

The NZD opens this morning stronger against all majors except the AUD. Performing strongly on Monday against the worlds base currency, the NZD/USD pair rose 50 pips to new monthly highs of 0.7050 in the mornings session before consolidating at levels closer to 0.7030. This resembles a 0.7% advance on the day which seemed to be ignited by broad based USD weakness with the USD index plunging to 10 day lows as global risk sentiment improved.

The NZD also opens about 0.5% higher against the EUR and the CAD, flat against the GBP and over 1% higher against the JPY. It did suffer at the hands of a surging AUD and opens this morning 0.7% softer against it’s rival across the pond.

On the technical front, first levels of resistance are at the 50 day moving average level of 0.7060 followed by the 200 day level of 0.7110. On the downside the pair remains supported in the short term at psychological levels closer to 0.7000 and June’s lows of 0.6960.

The Great British Pound failed to take advantage of broader USD softness edging lower through trade on Monday. Having failed to join the Euro advance against the worlds base currency Sterling touched intraday lows at 1.3297 as concerns surrounding ongoing Brexit negotiations stymied gains enjoyed earlier in the session on the back of stronger construction output. Having touched 7 day highs at 1.3398 the pound then tumbled amid skepticism surrounding Prime Minister May’s ability to deliver viable exit proposals in time for this month’s EU summit.

The GBP fell 3.5% through May as investors rapidly revised expectations for monetary policy and US trade policy further hampered expectations for growth and investment. Having traded through 1.43 just 6 weeks ago the rapid correction is indicative of the broader uncertainty facing the UK economy and suggest investors moved too early when extending long positions.

With markets brushing off increased US trade tensions to begin the week with positive risk sentiment, the USD exhibited broad based weakness on Monday especially against commodity currencies such as the AUD and NZD. Whilst equity and bond markets remained upbeat, in currency land the USD index was down 0.1% on the day bailed out by JPY weakness.

EUR/USD traded in a 60 pip range moving from 1.1680 to 1.1745 and then back again. Higher risk appetite did the JPY no favors with the USD/JPY bouncing from under 109.40 to 109.85, a move which was also supported by the uptick in US treasury yields.

Whilst better than expected US jobs data last week underlined the strength of the US economy and the near certainty of a FED interest rate rise this month the lingering trade disputes will continue to contribute to a challenging backdrop for the USD in the coming weeks.

From a data perspective we have some second tier data with May non-manufacturing business survey and job openings data due; neither of which are expected to move markets.

The Euro managed to consolidate itself above May lows, recovering 0.3% to close the session at 1.1696 against the USD. The greenback was weaker against most of G-10 currencies with markets embracing risk again, apparently supportive of the recent developments in the Italian political drama, where the Eurosceptic economist Paolo Savona was not appointed as finance minister.

The EURUSD rose as much as 0.7% in the intraday, were it met an important short-term resistance level of 1.1745, its highest level since May 24th, but couldn’t hold on into the gains and receded back below 1.17.

Support for the EURUSD is brought by the May 31 low of 1.1641, resistance would still come at 1.1750 and then 1.1769

Tricky session for the CAD, as it gained some ground against the broad USD weakness but was held back by WTI crude prices, down 1.4%.

Despite the risk-on sentiment in the market, the loonie only managed to gain 0.1% against the USD, closing the session at 1.2937 and trading within a tight range of 1.29 and 1.2965. It seems like the market is not yet convinced about the next Canadian employment data due out this week plus the developments of NAFTA negotiations.

Next levels to watch for the USDCAD are 1.2898 as support and 1.2965, Yesterday’s session high, as first resistance.