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$A falls after weak retail figures

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AAP

2013-02-06

The Australian dollar fell to a two and a half month low after official data showed that retail spending fell for a third consecutive month.

At 1700 AEDT on Wednesday, the local unit was trading at 103.56 US cents, down from 104.06 cents on Tuesday.

During the local session, the Australian dollar fell as low as 103.42 US cents, its weakest level since November 21.

Retail trade fell 0.2 per cent in December, the Australian Bureau of Statistics said on Wednesday, which was below market expectations of a 0.3 per cent rise.

Forex.com research analyst Chris Tedder said the retail figures would put more pressure on the Reserve Bank of Australia to cut the cash rate at its March board meeting after deciding not to cut on Tuesday.

He said the Australian currency was unable to bounce back up to its previous support level of 104.00 US cents after the retail data was released.

"We still favour more downside for this currency pair in the lead up to next month's rate decision, especially after today's weak retail sales data," Mr Tedder said.

The Japanese yen was sold off again after it was announced that Bank of Japan governor Masaaki Shirakawa decided to resign earlier than expected.

During the Asian session on Wednesday, the US dollar rose an almost three-year low against yen and the Australian dollar surged to its highest level in four and a half years against the Japanese currency.

At 1700 AEDT on Wednesday, the local unit was at 97.07 Japanese yen, up from Tuesday's close of 96.12 yen, and at 76.35 euro cents, down from 77.17 euro cents.

On Thursday, Australian employment figures will be released, with the unemployment rate expected to rise 0.1 per cent to 5.5 per cent.

Mr Tedder said the data will be important to the market because if the figures are weak it could further influence the RBA's March interest rate decision.

Meanwhile, Australian three-year bond futures prices were higher.

Mr Tedder said the data will be important to the market because if the figures are weak it could further influence the RBA's March interest rate decision.

At 1630 AEDT on Wednesday, the March 10-year bond futures contract was trading at 96.500 (implying a yield of 3.500 per cent), down from 96.530 (3.470 per cent) on Tuesday.

The March three-year bond futures contract was at 97.160 (2.840 per cent), up from 97.150 (2.850 per cent).

CMC Markets chief market strategist Michael McCarthy said local bond markets reacted sharply to the weak retail trade figures.

"I'd be very surprised if the Reserve Bank took that as major evidence or as game-changing evidence for the need for a rate cut, but I note that the market has," Mr McCarthy said.

"There's clearly still a focus on that potential for a rate cut and that's got the short-end (three-year bonds) a little bit concerned."

Jason Cadden and Roje Adaimy