Australian dollar price action commanded attention overnight as May Retail Sales overshot expectations, expanding by 0.7% versus 0.1% expected. The upside surprise was fueled by a 2.2% jump in sales of recreational goods and marks the fastest increase in 6 months.
Key Overnight Developments
• Australian Retail Sales Trump Expectations, Reverse AUDUSD Losses
• Euro Testing Above 1.58 Ahead of Thursday’s ECB Rate Decision
Critical Levels **
The Euro tested higher overnight trading, cautiously feeling above the 1.5800 level on approach to resistance at 1.5837. The Pound remained in a tight 25-pip range throughout the Asian session following a spike to touch the all-important 2.00 level during US hours.
** Please see Daily Technical Outlook for details.
Asia Session Highlights
Australian dollar price action commanded attention overnight as May Retail Sales overshot expectations, expanding by 0.7% versus 0.1% expected. The upside surprise was fueled by a 2.2% jump in sales of recreational goods and marks the fastest increase in 6 months. Perversely, this improvement in retail activity comes in the same month that economy lost -19.7k jobs. While some may interpret this as indicative of Australians’ confidence in finding new employment and thereby make a statement about the resilience of the labor market, it should be noted that some lag is to be expected before job losses translate into reduced disposable income expectations and depress consumption.
For their part, currency traders bought the Australian dollar following the announcement, expecting firm consumption to bid up the price level and force the RBA to hike interest rates at their September meeting. AUDUSD fully reversed losses sustained yesterday following RBA Governor Glenn Stevens’ decision to hold rates steady at a 12-year high of 7.25%. Stevens justified the decision by noting that “while the inflation outlook remains concerning, the board's assessment continues to be that demand growth will moderate this year.”
Euro Session: What to Expect
The forthcoming session is relatively light on market-moving data. Things will start off with June’s edition of UK Construction PMI survey. The metric is expected to show further contraction after printing below the 50 boom-bust level at 43.9 in May. Yesterday’s release of Nationwide’s index of house prices revealed real estate values declined by -6.3% in the year to June, the lowest level since 1992. Such dire developments are sure to weigh on sentiment in the construction sector, though further deterioration will reveal little that has not been priced into the sterling rate already.
The release of Euro Zone’s May Producer Price Index (PPI) should prove more interesting as the market breathlessly awaits Thursday’s ECB rate decision. Bank officials have walked a fine line in managing the market’s expectations, turning up hawkish rhetoric one moment then playing down a rate hike in the next. The release is expected to show prices rise to 6.7% in the year to May as firms face rising input costs from booming energy prices. Generally speaking, producers pass these costs on to consumers of their goods via a higher final purchase price. This makes PPI a good leading indicator for the direction of consumer prices and thereby giving clues as to the direction of monetary policy.
To contact Ilya regarding this or other articles he has authored, please email him at ispivak@dailyfx.com.
