Australian dollar rises, RBA minutes next
The Australian dollar has started the trading week with strong gains, extending the upswing from Friday. AUD/USD is trading at 0.6835, up 0.62% on the day.
Market risk sentiment has strengthened, courtesy of better-than-expected data out of the US on Friday. Headline retail sales and core retail sales both posted a gain of 1.0% MoM in June, above the forecast and an improvement from the May numbers. As well, UoM Consumer Sentiment improved slightly to 51.0, above the consensus for a contraction at 49.0. This has boosted the Australian dollar, a bellwether of risk appetite.
The financial markets were pleased with US retail sales, which points to consumers' willing to spend despite the bite that higher inflation is taking out of disposable incomes. At the same time, strong consumer spending paves the way for a massive 100bp hike from the Federal Reserve next week, as strong US data indicates that the economy is strong enough to withstand higher rates. There is a pre-meeting blackout of the FOMC ahead of next Thursday's meeting, but we can still expect plenty of discussion about whether the Fed will deliver a 75 bp or 100 bp increase. The more likely scenario is a 75bp move, but the Fed has surprised before, and a 100bp move is certainly on the table.
The RBA is also in the midst of a rate-tightening cycle, but the cash rate is only at 1.35%, which won't make a significant dent on surging inflation. The central bank is likely to continue tightening throughout the remainder of 2022. The minutes from the July meeting will be released on Tuesday, and investors will be looking for clues as to how aggressive the RBA plans to be as it tries to balance hiking rates without choking economic activity and causing a recession.
There is resistance at 0.6871 and 0.6949
0.6776 is providing support, followed by 0.6698
Market risk sentiment has strengthened, courtesy of better-than-expected data out of the US on Friday. Headline retail sales and core retail sales both posted a gain of 1.0% MoM in June, above the forecast and an improvement from the May numbers. As well, UoM Consumer Sentiment improved slightly to 51.0, above the consensus for a contraction at 49.0. This has boosted the Australian dollar, a bellwether of risk appetite.
The financial markets were pleased with US retail sales, which points to consumers' willing to spend despite the bite that higher inflation is taking out of disposable incomes. At the same time, strong consumer spending paves the way for a massive 100bp hike from the Federal Reserve next week, as strong US data indicates that the economy is strong enough to withstand higher rates. There is a pre-meeting blackout of the FOMC ahead of next Thursday's meeting, but we can still expect plenty of discussion about whether the Fed will deliver a 75 bp or 100 bp increase. The more likely scenario is a 75bp move, but the Fed has surprised before, and a 100bp move is certainly on the table.
The RBA is also in the midst of a rate-tightening cycle, but the cash rate is only at 1.35%, which won't make a significant dent on surging inflation. The central bank is likely to continue tightening throughout the remainder of 2022. The minutes from the July meeting will be released on Tuesday, and investors will be looking for clues as to how aggressive the RBA plans to be as it tries to balance hiking rates without choking economic activity and causing a recession.
There is resistance at 0.6871 and 0.6949
0.6776 is providing support, followed by 0.6698
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