Australian dollar sideswiped by dire data, still up on month

THE Australian dollar wobbled on Tuesday after data showed retail spending took a shock tumble in December and likely dragged on economic growth, trimming expectations for how much further interest rates might have to rise.

The Aussie slipped 0.1 per cent to US$0.7050, having already lost 0.7 per cent overnight amid a broad-based bout of risk aversion.

That still left it 3.5 per cent higher for January as a whole.

Resistance lies at last week’s eight-month peak of US$0.7143, with support at US$0.7030 and US$0.7000.

The kiwi dollar held at US$0.6466, after dipping 0.4 per cent overnight and away from its recent top of US$0.6530. It is up 1.9 per cent for the month so far.

The latest pullback came after data showed Australian retail sales dived 3.9 per cent in December, far exceeding forecasts of a 0.3 per cent dip and the biggest drop since August 2020 when coronavirus restrictions were hammering the sector.

The slide wiped out gains made the previous two months and, combined with accelerating inflation, implied real sales also fell over the fourth quarter and dragged on economic output.

Investors were still wagering the Reserve Bank of Australia (RBA) would hike by a quarter point to 3.25 per cent at its February policy meeting next week, given recent inflation figures for the fourth quarter had been alarmingly high.

Markets did nudge down the implied peak for rates by around 10 basis points to 3.72 per cent, while three-year bond futures firmed 4 ticks to 96.840.

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“The Q4 consumer price figures provided little evidence that the pace of inflation has passed its peak, so another hike in February is highly likely,” said Paul Bloxham, chief economist Australia at HSBC.

“We expect a further hike in March too,” he added. “The risk is rising that a hard landing is needed to get inflation down and with elevated inflation likely to persist, rate cuts seem some time away, too.”

For New Zealand, the main data for the week is employment for the fourth quarter due on Wednesday where analysts look for the unemployment rate to stay at a record low of 3.3 per cent but for jobs growth to moderate to just 0.3 per cent.

Just as important will be wages, with labour costs seen rising to an annual 4.3 per cent and the highest in the history of this series. Such a result would support market pricing for a rate hike of at least 50 basis points next month. REUTERS