The Australian dollar is currently weakening against all major currencies except the Canadian dollar. AUD is the weakest against the Japanese yen and the US dollar. Yesterday, the currency sold off during Asian and European hours, but made back some of its losses during US trading hours.
The big news driving the Australian dollar today is weaker-than-expected March retail sales. After an upbeat assessment of Australia's economy by the Reserve Bank of Australia last week, expectations for better data this year were running high. The latest figures suggest that Australia's heavily indebted consumers remain wary of spending. Given the significant size of household spending as a proportion of the overall economy, this both lowers the outlook for GDP growth and associated rate hike expectations. While Chinese imports (also announced earlier today) were higher than expected, this was ultimately overshadowed by weakness in domestic retail sales.
Given weakness in domestic data, heavy reliance on commodity exports, and reliance on emerging markets growth, the Australian dollar is among the most vulnerable major currencies today. This year, the weakest emerging markets (such as Turkey and Argentina) have suffered sharp sell-offs in their respective currencies. So far, the pain has yet to spread to stronger emerging market economies such as China. Either way, the combination of a global growth slowdown and rising uncertainty in emerging market economies is a troubling sign for the Aussie. Our short-term outlook and medium-term outlook on the Australian dollar remains bearish.
AUD/USD is down and trading just above 0.7490. EUR/AUD is up and trading above 1.5890. GBP/AUD is up slightly and trading above 1.8050.
This is a relatively light week for the Australian dollar economic calendar. The AiG performance of construction index for April (55.4 vs. 57.2 prior) decelerated from previous figures. MoM retail sales for March (0% vs. 0.3% expected) were below expectations. Later today, we'll see the annual budget release from the government. Tomorrow, we’ll see Westpac consumer confidence for May. On Thursday, we’ll see March home loans and investment lending for homes. Last week, the Reserve Bank of Australia upgraded its outlook for growth and inflation over the coming two years.
As the Australian dollar runs out of steam, we are now bearish on the Australian dollar in the medium-term. Looking at a weekly chart, the Aussie is trading within normal conditions. Our analysis is based on various technical indicators.