The Australian dollar is higher because the Chinese yuan is up too

Kevin Frayer/Getty Images
  • The Australian dollar continued to gain on Thursday, lifting to a three-week high against the greenback.
  • A rally in the Chinese yuan was the main factor that pushed the Aussie higher. Almost everything else was irrelevant on Thursday.
  • Australian retail sales for November will be released today. Whether it will be enough to loosen the yuan’s grip over the Aussie is questionable. US CPI will be the main risk event in the second half of the session.

The Australian dollar continued to gain ground against all of the major crosses on Thursday, except the Chinese yuan.

Here’s the scoreboard at 7.45am in Sydney on Friday.

AUD/USD 0.7185 , 0.0015 , 0.21%
AUD/JPY 77.9 , 0.36 , 0.46%
AUD/CNH 4.8798 , -0.0039 , -0.08%
AUD/EUR 0.6248 , 0.0036 , 0.58%
AUD/GBP 0.5636 , 0.003 , 0.54%
AUD/NZD 1.0593 , 0.0035 , 0.33%
AUD/CAD 0.9507 , 0.0037 , 0.39%

In short, the main reason the Aussie dollar is trading higher is because the Chinese yuan is rallying, hitting the highest level in five months during the session.

“Instrumental to the gains has been the appreciation of the Chinese Yuan yesterday afternoon and which has also dragged most of emerging market Asia FX up in its slipstream,” said Ray Attrill, Head of FX Strategy at the National Australia Bank.

Making the yuan’s rally all the more impressive, and somewhat unusual, it came despite the release of weak Chinese inflation data for December, adding to mounting evidence that momentum in the economy is slowing quickly.

After initially falling to .7146 on the data, the AUD/USD quickly reverted to mirroring the movements in the Chinese yuan, eventually seeing it lift to as high as .7197, a level not seen since December 19.

Investing.comAUD/USD Hourly Chart

While there were plenty of other events in the second half of the session, including speeches from several leading US Federal Reserve officials, they were largely irrelevant for the yuan-centric Aussie dollar.

Put bluntly, where the offshore traded yuan moved, the Aussie dollar followed.

Thomson ReutersAUD/USD (yellow, RHS) v USD/CNH (white, LHS, inverted). 5-Minute Chart.

That will almost certainly continue today, even with the release of major economic data in Australia.

Following the Ai Group’s Performance of Construction Index for December at 8.30am AEDT, the main highlight will arrive three hours later when Australia’s retail sales report for November is released.

The median economist forecast looks for an increase of 0.3%, although, as pointed out by Attrill at the NAB, uncertainty surrounding this report is incredibly high.

“Retail Sales data around this time of year are particularly interesting as consumer spending patterns have been shifting. The rise of Black Friday, Cyber Monday and Click Frenzy sales have seen households bring forward their Christmas shopping and Boxing Day Sales shopping into November,” he says.

“As such, markets will likely interpret any strong November Retail Sales outcome with a degree of caution given this could easily be offset by a weaker December result due to these shifting seasonal spending patterns.

“However, if retail sales are weak in the month, this will likely be taken as a sign of another weak print for consumption in Q4.”

Given market expectations, the latter result is undeniably a major risk today, especially given reports that spending was weak throughout the Christmas trading period this year.

Outside of that release, other highlights today include Japanese trade data, GDP, industrial production and trade figures from the UK along with CPI and budget data from the United States.

The US CPI report will be the major risk event in the second half of the session.

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