The Aussie Goes for a Wild Ride ahead of Tonight’s State of the Union Speech

Earlier in the Day:

Economic data released through the Asian session this morning included December retail sales and trade figures out of Australia.

Outside of the stats, the RBA’s February monetary policy decision and rate statement was also released.

For the Aussie Dollar

Retail sales slid by 0.4% in December, following a 0.5% increase in November. Forecasts were for retail sales to decrease by 0.2%. According to the ABS,

• Household goods sales fell by 2.8%, with clothing and footwear sales falling by 2.4%. Department store sales also saw red, down by 1.1%, with other retailing sales falling by 0.1%.
• A 0.5% rise in food retailing sales and a 1.1% rise in cafes, restaurants and takeaway food services sales partially offset the decline.

Australia’s trade surplus widened from a revised A$2.256bn to A$3.681bn in December.

• Goods and services exports fell by A$634m (2%) to A$37,924m.
  • Non-monetary gold fell by A1,034m (57%).
  • Goods under merchanting fell by A$1m (3%)
  • Rural goods exports increased by A$353m (10%), with non-rural goods exports rising by A$33m.
  • Services credits increased by just A$16m.
• Goods and services imports fell by A$2,058m (6%) to A$34,244m.
  • Capital goods imports fell by A$1,070m (15%).
  • Intermediate and other merchandise goods fell by A$717m (6%), with consumption goods falling by A$653m (7%).
  • Non-monetary gold imports rose by A$161m (46%), with the imports of services rising by A$222m (3%).

The morning’s stats weighed on the Aussie Dollar, a slide in imports and retail sales figures delivering more doom and gloom for the Aussie economy.

The Aussie Dollar moved from $0.72118 to $0.71951 upon release of the figures, which preceded the RBA’s policy decision.

The RBA held rates unchanged at 1.5% as had been expected. Salient points from the rate statement included,

• The central scenario is for the Australian economy to grow by around 3% this year and a little less in 2020.
• Downside risk has increased, with September growth weaker than expected.
• Weaker 3^rd quarter growth was attributed to weaker household consumption and income growth.
• The main domestic uncertainty remains over household spending and the effect of falling house prices.
• Credit conditions for some borrowers have tightened and demand for credit by investors in the housing market has seen a material slowdown.
• Labour market conditions remain strong, with unemployment at 5%. A further decline to 4.75% is expected over the next couple of years, with wage growth seeing a pickup.
• Inflation remains low and stable, with the central scenario for this year being 2% and 2.25% for 2020.

The Aussie Dollar moved from $0.72122 to $0.72455 upon release of the decision and rate statement. The lack of any suggestions of a need to cut rates delivered the morning recovery

At the time of writing, the Aussie Dollar stood at $0.7261, gaining by 0.48% for the session.

Elsewhere

The Japanese Yen stood at ¥109.88 against the Dollar, up by 0.01% for the session. The Kiwi Dollar was up by 0.07% to $0.6901.

The Day Ahead:

For the EUR

Economic data scheduled for release include January’s service sector PMI numbers and December’s retail sales figures out of the Eurozone.

Barring any material revisions to prelim figures out of Germany or France, we will expect the focus to be on Italy’s PMI and the Eurozone’s retail sales figures.

The EUR has managed to hold onto $1.14 levels in spite of a dovish ECB and disappointing economic data. This week’s stats out of Germany could ultimately drag the EUR back to $1.13 levels, though economic data out of the U.S will need to hold steady

At the time of writing, the EUR was down 0.05% to $1.1432.

For the Pound

The January Services PMI is the only economic data due out later this morning. The numbers will provide the Pound with direction, though the effects will likely be short-lived. Brexit and the BoE’s outlook on inflation and growth remain the key drivers through the week.

We could see a bounce in the Pound should the British PM make more progress with key EU member states.

News of German Chancellor Merkel being willing to compromise is a plus, even if she has seen her influence in the region wane. Germany is one of the member states who has a lot to lose should Britain fall out of the EU without a deal…

At the time of writing, the Pound was up 0.02% to $1.3039, with Brexit chatter remaining the key driver throughout the day.

Across the Pond

It’s a busy day ahead. Service sector PMI figures for January are scheduled for release this afternoon. The focus will be on the market’s preferred ISM surveyed numbers. The Dollar will be sensitive to the figures, which are due out ahead of the State of the Union Speech.

Trump will have the ultimate say on the Dollar, with tonight’s State of the Union speech. There will likely be plenty of references made to The Wall and immigration.

At the time of writing, the Dollar Spot Index was down by 0.01% to 95.844.

For the Loonie

There are no material stats scheduled for release through the day to provide direction. The Loonie will be in the hands of market risk sentiment throughout the day.

A recovery in crude oil prices has provided the Loonie with plenty of support and will likely continue to do so, in spite of weak economic data of late.

The Loonie was up by 0.04% to C$1.3105, against the U.S Dollar, at the time of writing.