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Australia dollar slips to 4-month low after weak retail sales, NZD steady

Tuesday, May 9, 2017 - 11:48

[SYDNEY] The Australian dollar eased to four-month lows on Tuesday after disappointing retail sales figures reinforced expectations of steady interest rates for months to come.

The Australian dollar hit US$0.7355, the lowest since mid-January, after Australian retail sales dipped 0.1 per cent in March, against forecasts of a gain of 0.3 per cent.

Support was found around 73 US cents.

The weak data, however, barely changed expectations of a steady rate outlook with interbank futures showing almost no chance of a move this year.

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The Reserve Bank of Australia (RBA) kept rates at a record low 1.5 per cent last week, following two easings last year.

"We think the RBA is likely to wait for CPI inflation to be consistently above 2 per cent in the next 6-12 months before signalling a shift in its stance," said Rahul Bajoria, an economist at Barclays, who expects an interest rate hike in the second quarter of next year.

The Aussie is down 1.7 per cent so far this month, largely due to retreating iron ore prices. The most-traded iron ore on the Dalian Commodity Exchange was down 2 per cent on Tuesday, below 460 yuan a tonne and nearing January lows.

Meanwhile, the pound popped above A$1.7600, the highest since September last year. A break above A$1.7797 would open a test of the symbolic A$2.00 last seen nearly one year ago.

Australia's federal budget will be released late on Tuesday, but the Aussie is unlikely to react much since most of the proposed measures have already been leaked to the press.

In contrast to the Aussie, the New Zealand dollar recovered some ground to US$0.6915, from a low of US$0.6889 on Monday.

Support was found around US$0.6890. It has gained 0.6 per cent so far this month, partly due to expectations the Reserve Bank of New Zealand (RBNZ) might take on a slightly more hawkish stance from its current neutral bias at Thursday's policy review.

"NZD remains relatively well supported in a fairly neutral US$0.6850-0.6950 range. US dollar's recent softness plus a potentially upbeat RBNZ on Thursday are supportive factors," said Imre Speizer, a strategist at Westpac.

All 26 economists polled by Reuters forecast the central bank would stand pat on May 11, following a rate cut in November last year. Nearly all predict a steady rate outlook this year.

New Zealand government bonds eased with yields 3 basis points higher along the curve.

Australian government bond futures fell to one-month lows, with the three-year bond contract off 1 tick at 98.070.

The 10-year contract shed 2 ticks to 97.2750, while the 20-year contract edged 2.5 ticks lower to 96.6950.

REUTERS

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