Aussie dollar lower after strong US data

Daily Currency Update

AUD - Australian Dollar

Tuesday’s session saw the Australian dollar fall against the greenback, as stronger than expected retail sales and industrial production data out of the world's largest economy boosted demand for the greenback. Although it held its ground above 0.7300, AUD/USD fell from 0.7367 to 0.7302 throughout trade and with the NZD/USD also falling back below the key 0.7000 handle, AUD/NZD was able to eke out modest gains, rising from 1.0420 to 1.0455. AUD/EUR was able to hold on to most of Monday’s ECB led gains, falling modestly, with the pair currently trading hands this morning at 0.6450.

We did get the release of the RBA minutes yesterday. No new information was provided to the market, and therefore the market's reaction to the release was minimal. Governor Lowe also spoke about inflation, remaining unconcerned about rising domestic inflation and reiterated his thinking that Australia’s inflation is ‘different’ from the global inflationary environment. The market's view of a number of rate hikes from 2022 is still at odds with the RBA’s view of no rate hikes until 2024.

As we mentioned above, US retail sales surprised to the upside overnight, posting a 1.7% month on month rise for October, coupled with upward revisions to previous data. Sentiment was further boosted by a 1.6% month on month increase in US industrial production data in October, with analysts noting an 11% increase in auto production as a big upside surprise given the ongoing global shortage of semiconductors. Both sets of data boosted demand for the US dollar, allaying some lingering fears about the strength of consumer sentiment in the USA.

With inflation the hottest topic in markets at present, today's docket will deliver a few data points of interest, starting with NZ PPI and Australian wage data. Moving offshore, we will get UK CPI as well as Canadian CPI, which are expected to maintain the trend of rising inflationary pressures and increased likelihood of rate hikes throughout 2022.

From a technical perspective, AUD/USD demonstrated strong downside support at 0.7300 however a move below this handle could open the door to 0.7275. On the topside, early November highs around 0.7500 seem awhile off, a break through 0.7370 could see a test of 0.7400.