AUD should be able to grind up towards 0.76? - Westpac

Sean Callow, Research Analyst at Westpac, suggests that if the US retail sales report is not unexpectedly strong and Australia’s wages data isn’t notably weak, then the Aussie should be able to grind up towards 0.7600.

Key Quotes

“AUD should also gain on crosses in this scenario, given support from commodity prices and equities.”

“AUD/USD started this week dead flat versus last Monday, around 0.7550. But this disguises a round trip to the low 0.74s in the middle of last week, printing fresh lows since June 2016. The key driver was swings in US dollar sentiment rather than Australia’s domestic news or data.”

“Early last week, the US dollar rose against most major currencies, producing milestones such as the euro and kiwi hitting lows dating to December, as well as the AUD/USD low. But the greenback lost momentum after US April CPI rose by less than expected, supporting the case for the Federal Reserve to be cautious about the pace of monetary tightening. A rate hike in June however remains almost fully priced.”

“This week’s US data focus is April retail sales. Economists expect GDP growth to rebound in Q2 after Q1’s soft 2.3% pace, so the retail sales release will be an important test of this optimism and could set the tone for the US dollar for the week.”

“The Aussie’s weakest point last week came in the day following the federal budget but the two seem unrelated.”

“Australia’s employment report is probably less important than the wages data for the RBA but tends to have a larger impact on the $A. Consensus in the Bloomberg survey is for the unemployment rate to hold at 5.5%, with jobs expected to have risen 20k (Westpac +17k). A reading around this level would reinforce the broadly positive Australian domestic foundations for the Aussie.”

“Commodity prices are also edging higher, though still well down on Jan-Feb levels, while global equity volatility has declined. This implies a mildly positive bias for AUD/USD in the week ahead. If US retail sales is not well above expectations and Australia’s wages data isn’t notably weak, then the Aussie should be able to grind up towards 0.7600.”