The Australian and New Zealand Dollars are edging lower on Thursday as better-than-expected U.S. retail sales cast a shadow on hopes of an earlier-than-expected pivot in the Federal Reserve’s aggressive tightening stance.
Domestically, the Aussie showed little reaction to a robust labor market report that showed better-than-expected jobs growth combined with an unexpected drop in the unemployment rate.
The Kiwi also showed little response to weaker than expected producer prices.
At 05:48 GMT, the AUD/USD is trading 0.6715, down 0.0028 or -0.42%. The NZD/USD is at .6135, down 0.0012 or -0.20%. On Wednesday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $66.75, down $0.22 or -0.33%.
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U.S. data overnight showed October retail sales rose 1.3% compared with economist expectations for 1.0%, a healthy signal but one that dented hopes for a pause in rate increases.
“Markets have positioned for the Fed to pivot (but) the U.S. retail sales data very much challenges that narrative,” said Commonwealth Bank of Australia currency strategist Kim Mundy. “The U.S. economy is driven by the consumer and if the consumer is still spending, it suggests it’s going to take inflation longer to ease.”
Australia Jobs Data Beats Forecast, Strengthening Case for More Rate Hikes
Australia’s jobless rate fell to a five-decade low in October as employment climbed more than double the market forecasts, a sign it will take further increases in interest rates to loosen the extremely tight labor market.
Figures from the Australian Bureau of Statistics on Thursday showed net employment rose 32,200 in October from September, when they fell a revised 3,800. That came as a surprise to many analysts who had looked for a gain of only 15,000.
The jobless rate dipped to 3.4%, from 3.5%, again beating forecasts of a slight rise, while hours worked rebounded by a strong 2.3% as fewer people than normal took leave in the month.
New Zealand PPI Inputs Rise 0.8% in Q3
Producer price inputs were up 0.8 percent on quarter in the third quarter of 2022, Statistics New Zealand said on Thursday – slowing from 3.1 percent in Q2. Traders were looking for a reading of 2.6%. The drop in PPI indicates the RBNZ rate hikes are working to drive down inflation.
PPI outputs climbed 1.6 percent on quarter, down from 2.4 percent in the previous three months.
Short-Term Outlook
Today’s early price action suggests traders are renewing bets on a much tougher Fed after a one-week reprieve. The strong retail sales report is one factor fanning the flames, but the biggest influence on the U.S. Dollar is the hawkish remarks from Fed members.
The strongest words came from one of the most dovish Fed officials, San Francisco Fed President Mary Daly. She said a pause was off the table.
Kansas City Fed President Esther George told the Wall Street Journal that policymakers must be “careful not to stop too soon” on rate increases and that avoiding a recession might be difficult.
