Aussie retail sales - what to expect in AUD/USD?

AUD/USD has opened this week in a chop and narrow range after last week's mixed nonfarm payrolls outcome.The US dollar index fell after the data but partly recovered thereafter to close up 0.1% on the day.

For today, the focus will be on retail sales data for Australia and analysts at ANZ explained that any upside surprises are likely to see the AUD test the upside again. While retail sales is always a key driver for the currency, this week's will be especially important given the recent performance of the Aussie and how far it has come this year already, pretty much retracing all of the 2016 Nov sell-off from 0.7777 to 0.7160 lows at the end of December's business. We also have the RBA meeting this week who might be having to come out of their hammock earlier than last anticipated given the state of jobs, inflation and the Q3 miss. 

However, while Q4 GDP growth may be me more subdued than initially expected,(will be released 1st March) the bigger picture of the Australian economy currently underway seems to be continuing unaffected. As explained by a number of analysts, including those at Westpac, the Australian economy has seen an increase in corporate profitability from the non-mining sector. "Against that coal and iron ore are likely to sustain a good portion of their dramatic rises, and economic data for Q4 and Q1 should improve, but these forces are subservient to the US dollar’s trend, " explained the analysts at Westpac. Staying with this notion, in the external sector, the Treasurer recently announced that he intends to start informal talks with the UK on a potential trade agreement following Brexit. 

In respect to retail sales, economists have been forecasting another subdued outcome after a weak result in November. However, while in nominal terms retail spending is expected to remain low, there are economists out there that are expecting a good rebound in sales volumes during the December quarter - that is something that could bode well for households consumption in Australia’s upcoming Q4 GDP report.

"Keep an eye on treasury yields after Fed Williams hawkish comments with any rebound in rates potentially putting downside pressure on AUD," suggested analysts at ANZ.

AUD/USD levels

Analysts at Westpac offered:

A) AUD/USD 1 day:  Strong upward momentum targets the 0.7780 area next (Nov high).

B) AUD/USD 1-3 month: Lower to 0.7400. The US dollar’s impressive post-election rally may have paused, but still has potential to rise further during the months ahead. The Fed’s assertive tightening bias plus US fiscal expansion should maintain upside pressure on US interest rates and the US dollar. Against that coal and iron ore are likely to sustain a good portion of their dramatic rises, and economic data for Q4 and Q1 should improve, but these forces are subservient to the US dollar’s trend. Australia’s AAA rating will remain an issue into the May budget. (23 Dec)

Currently, the market’s dip lower is indicated to terminate circa 0.7505/.7435 by analysts at Commerzbank, stating, "We suspect that prices will need to go sub 0.7400 to alleviate upside pressure and trigger losses to 0.7312/00 then 0.7161/64, the recent lows."