Equity Markets and the AUD slide, with all Eyes on the USD

Earlier in the Day:

Economic data released through the Asian session this morning included new home sales, retail sales and trade data out of Australia, the UK’s December BRC sales monitor, while the RBA also made its February interest rate decision.

For the Aussie Dollar, the recent shift in sentiment has been evident, with the Aussie Dollar having closed out the day down 0.67% and there was no respite this morning.

December new home sales were flat, following a 6.1% slide in November, which saw the Aussie Dollar move from $0.7877 to $0.78829 upon release of the figures, which was the only positive for the Aussie Dollar this morning.

December retail sales fell by 0.5%, which was worse than a forecasted 0.2% decline, following November’s 1.3% rise, with the decline in retail sales relatively broad based. House hold goods retailing (-2.6%) was amongst the worst hit, with electrical and electronic goods retailing sliding by 4.7% and furniture, floor coverings, houseware and textile goods retailing down by 3%.

From an inflation perspective, the greatest concern would have been that sales were on the rise on a volume basis, with the household goods seeing the largest increase in sales volume, attributed to heavy discounting. The upside from the sales figures was a 0.9% rise in retail sales through the 4^th quarter, improving on the 3^rd quarter’s lacklustre 0.1% rise.

The trade figures out of Australia were no better for the Aussie Dollar, Australia’s trade balance falling to a A$1.358bn deficit, a marked deterioration from November’s A$1394 surplus.

Exports rose by 2%, with the upside coming off the back of a 4% rise in non-rural goods exports, while imports rose by 6%, driven by a 68% surge in the import of non-monetary gold, a 9% rise in intermediate and other merchandise goods, with consumption goods imports (+5%) and capital goods imports (+6%) also on the rise..

For 2017 the reading was more favourable. The trade balance stood at a surplus of A$11.1bn, recovering from a 2016 deficit of A$13.7bn, driven by a 15% increase in exports v a 7% increase in imports.

The Aussie Dollar moved from $0.7886 to $0.7869 upon release of the figures released by the ABS.

Following the stats, the RBA held rates unchanged in February, which was in line with market expectations, while having a positive sentiment towards the Australian economy, supported by solid retail sales figures for the quarter, which came in spite of softer December numbers.

The Aussie Dollar slipped from A$0.78733 to A$0.78571 upon release of the statement, with the RBI giving little away on its outlook for rates for the year.

At the time of writing, the Aussie Dollar slipped deeper into the red, down 0.52% to $0.7837, with the Yen rallying 0.51% to ¥108.53 against the Dollar, as the markets struggled with global equity market sell-off.

In the equity markets, the Nikkei was down 6.45%, the index also getting hit with the Yen’s bounce. The Hang Seng slumped 4.94%, with the ASX200 down 3.45%, while the CSI300 coughed up 2.22% in the morning, as the markets responded to the more than 1,100 point slide in the Dow overnight.

The Day Ahead:

For the day ahead, economic data out of the Eurozone is limited to Germany’s December factory orders, which are forecasted to be EUR positive, with expectations of Merkel and the SDPs reaching a coalition agreement this week also a positive.

At the time of writing, the EUR was down 0.08% to $1.2357 of the back of Monday’s 0.77% slide, with the equity market sell-off and shift in sentiment towards U.S inflation seeing demand for the Dollar on the rise in the early part of the week.

For the Pound, it was a choppy day on Monday, with a 1.13% fall taking the Pound to its weakest level since the late January rally. With no material stats out of the UK this morning, sentiment towards the UK government and Brexit will remain a factor ahead of Thursday’s BoE MPC monetary policy decision, which comes off the back of some disappointing January private sector PMI numbers.

At the time of writing, the Pound was down 0.10% to $1.3945, with more on the way should the Brexit news wires fail to impress and the Dollar continue on its path to recovery.

Across the Pond, stats include December’s trade figures, with JOLTs job opening numbers also there for the markets to consider, though the stats are unlikely to shift sentiment towards the Dollar, following last week’s wage growth figures. FOMC member Bullard may have more influence later today should his views support the shift in market sentiment, with a number of FOMC members scheduled to speak later in the week.

At the time of writing, the Dollar Spot Index was up 0.17% to 89.708, with more to come from the Dollar bulls should Bullard & co toe the line.

For the Loonie, there may be more downside in the day ahead, with Canada’s C$2.54bn trade surplus forecasted to slide to a C$2.3bn deficit, which will likely overshadow any upbeat January PMI numbers due out this afternoon.

The Loonie managed to claw back some of its losses in the early part of the day, though much will depend on the U.S session.

For the equity markets, the Dow mini is looking set for another 600 plus point slide this afternoon, with algos and stop loss orders contributing to the slides across the global equity markets.