Disappointing Retail Sales Figures Spook The Aussie

Despite the better than expected payrolls data equity markets throughout Asia are fairly flat, which tells us that as Italy’s 10yr bond yield hovers above 7% Europe is at the forefront of investor sentiment. Nevertheless, attention momentarily turned to retail sales data out of Australia this morning, before refocusing on the Merkel-Sarkozy meeting tonight.

Retail sales growth in Australia slid for a fourth month in a row during November. The headline figure released this morning came in at 0.0%, much lower than consensus estimates looking for a 0.4% increase. The market was expecting that the reduction in the official cash rate would encourage households to spend more, but given the lack of consumer confidence in Australia and the amount of financial market uncertainty it is not surprising that consumers didn’t flock to retail stores.

The data coming out of Australia has been fairly mixed of late. Combine these figures with the deteriorating offshore situation, and at its meeting next month we think that the bank is going to slash the OFC again. Conditions in Europe are unlikely to improve in the near term and more evidence is emerging of softer growth for Australia’s export partners in Asia.

Strong payrolls data on Friday failed to spark a rally in risk late last week, instead we saw the euro get hammered and equity markets remained fairly flat. At the same time, the dollar gains we witnessed are likely because traders think that the figures might decrease the likelihood of more QE from the Fed and also concern surrounding the situation in Europe.

In other news, new home sales data for November came in better than October’s figure at 6.8%. This resulted in a momentary push higher for AUDUSD by around 10 pips, before the currency was overtaken by a small sell-off leading up to the release of the retail sales data.

The focus of the market later today is going to be on the upcoming meeting between Merkel and Sarkozy. In the past, these sort of bilateral meetings have occasionally provided some market moving plans, yet we think this is unlikely on this occasion given the lack of chatter on new/improved solutions to the European crisis. Nevertheless, watch out from some more possible downside for the euro leading up to the meeting.

Ones to Watch:

AUDUSD was sent around 30 pips lower on the back of the retail sales data. Yet, it couldn’t manage a sustained break of 1.0150, suggesting that this level could act as support for the pair. If the aussie manages to break this level watch for a push below 1.0127 to suggest some more possible downside risk. On the upside, the aussie is struggling to hold above 1.0170.

The hourly RSI is looking fairly bearish but we could see some consolidation around current levels before a possible push lower.