The Australian dollar is on the charge

KAREN BLEIER / AFP / Getty Images

The Australian dollar is on the charge, rising to the highest level in three months on Thursday on the back of a bumper Australian retail sales for November and broad-based US dollar weakness.

Here’s the scoreboard at 8.10am AEDT.

AUD/USD 0.7890 , 0.0048 , 0.61%
AUD/JPY 87.74 , 0.36 , 0.41%
AUD/CNH 5.1212 , 0.0063 , 0.12%
AUD/EUR 0.6558 , -0.0005 , -0.08%
AUD/GBP 0.5828 , 0.0023 , 0.40%
AUD/NZD 1.0872 , -0.002 , -0.18%
AUD/CAD 0.9884 , 0.0047 , 0.48%

After starting the session buying .7842, the AUD/USD ripped higher in Asia following the release of Australia’s retail sales report for November. Total sales jumped by 1.2% — the largest monthly increase since January 2013 — helping to ease concerns over the current state of household finances.

Later in the session, the Aussie found further support from broad-based US dollar weakness with soft economic data and a rally in the euro sending the greenback sharply lower.

The move in the euro was due to the release of the minutes of the ECB governing council’s December monetary policy meeting which signalled that a change in the bank’s forward guidance may arrive in the months ahead.

“It was argued that communication needed to evolve gradually in step with improving economic data and a further easing of financial conditions was not regarded as warranted,” the minutes read.

“From this perspective, it was important for the forward guidance to be updated in line with evolving data, with a view to avoiding more abrupt or disorderly adjustments at a later stage.

“It should be highlighted that the stronger than expected expansion of the euro area economy had further reduced the likelihood of adverse economic outcomes and, hence, had bolstered the Governing Council’s confidence in the eventual attainment of its inflation aim”.

The ECB said “the language pertaining to various dimensions of the monetary policy stance and forward guidance could be revisited early in the coming year,” adding “in particular, as progress was made towards a sustained adjustment in the path of inflation, the relative importance of the forward guidance on policy rates would increase.”

According to Gavin Friend, senior market strategist at the National Australia Bank, the language suggests the ECB is moving towards adjusting other areas of policy, including interest rates.

“We see these lines consistent with our (outlook) that the ECB’s communication will gradually shift from focusing on QE to other policy measures including rates,” he says.

“A more material shift in the ECB’s Statement could take place at the 8 March meeting, which will see another set of staff forecasts produced. That could mean either the removal of the line that the ECB stands ready to increase the asset purchase program (APP) in terms of size and/or duration, or it may remove the line ‘or longer if necessary’ that accompanies the pledge to buy assets until September.”

The minutes lit a fire under the euro, seeing rally 1% against the US dollar. That, along with soft producer price inflation and jobless claims data in the US, acted the weaken the greenback against all major crosses including the Aussie dollar.

As seen in the daily chart below, the AUD/USD is now within a whisker of .7897, the high of October 13.

AUD/USD 4-Hour Chart

Whether the Aussie manages to break above this level today will largely come down to the release of Chinese international trade data for December that will arrive sometime after 1pm AEDT.

In annualised terms, economists expect exports and imports to have grown by 9.1% and 13% respectively, down from 12.3% and 17.7% in November. The trade surplus is tipped to fall to $US37 billion, down from $US40.21 billion a month earlier.

Outside of the Chinese data, the other major releases on Friday will be US consumer price inflation and retail sales for December at 12.30am AEDT.

Markets are looking for headline inflation to increase by 0.2%, leaving the change on a year earlier at 2.1%, down from 2.2% in November.

Underlying inflation is also expected to lift by 0.2% over the month, leaving the annual rate unchanged at 1.7%. Although not the Fed’s favourite inflation measure, this would be below the bank’s 2% annual target, continuing the pattern seen since the first quarter of 2017.

As for retail sales, they’re forecast to increase by 0.4%, half the 0.8% gain reported in November. Excluding auto sales, core sales are also expected to lift by 0.4%, below the 1% increase of a month earlier.

The so-called retail control group — closely aligned to household spending in US GDP — is also forecast to increase by 0.4%.

While they will play second fiddle to those reports, other releases today include inflation readings from France, Spain, Italian industrial output and US business inventories and real weekly earnings figures.

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