The Australian dollar has posted strong gains to start the week. AUD/USD is trading at 0.6203 in the North American session, up 0.71% on the day. The Aussie has ended a nasty six-day losing streak, during which it declined 3% against the US dollar.
Will Australian retail sales rebound?
Australia releases retail sales on Tuesday, with a market estimate of 0.3% m/m for January. That would mark a strong turnaround from the December reading of -0.1%. The December report marked the first decline in nine months and contributed to the Reserve Bank of Australia’s decision to lower rates last month, the firsts cut in four years. Another decline in retail sales would raise eyebrows at the RBA and would increase the chances of further rate cuts in the coming months.
The RBA releases the minutes of the February meeting and investors will be looking for insights about the historic rate cut as well as clues about future rate cuts. The central bank delivered a “hawkish cut” as it stated at the meeting that it remained cautious about further cuts. Reading between the lines, the RBA tried to dampen expectations for a series of rate cuts as we have seen with other major central banks. The upside risk of inflation remains on the minds of Bank members and the markets aren’t expecting another cut before May.
The RBA is also concerned about US President Trump’s tariffs, specifically the specter of another US-China trade war. China is Australia’s largest trading partner and a trade war would hurt China’s economy, which in turn would mean less Chinese demand for Australian exports.
In the US, the ISM Manufacturing PMI eased to 50.3 in February, down from 50.9 in January and below the market estimate of 50.5. This points to stagnation in the manufacturing sector, and the outlook is not at all bright, with the possibility of US tariffs being renewed this week against Canada and Mexico.
AUD/USD Technical
- AUD/USD has pushed above support at 0.6213 and is testing support at 0.6234
- 0.6188 and 0.6167 are the next resistance lines
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