Australian dollar still unsettled after weak retail sales

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The Australian dollar is still sitting at the bottom of the currencies ladder today despite declines for other majors during the European morning session on Tuesday.

The so-called Aussie is down 0.5 per cent at a four-month low of $0.7349 after data earlier today showed retail sales shrank 0.3 per cent in March, weaker than the previous month and also below economists’ expectations for a 0.1 per cent gain.

This is adding insult to injury, with a drop in commodity prices last week also sinking the boot into the currency.

Tom Kennedy at JPMorgan labelled the retail report as “unequivocally weak” that added to “the already underwhelming trend in the retail data” and lowered the annual rate to a multi-year low of 2.2 per cent.

While the retail sales and national accounts data are not perfectly aligned (retail sales has a narrower scope, even within goods spending), today’s print creates some downside risk to 1Q household consumption. Indeed, before today we had forecast real household consumption to increase 0.6%q/q in the March quarter, a deceleration from the final print of 2016, but still a respectable outcome in the context of the past few years. In the absence of a sharp increase in spending across the service sectors, it would seem there is downside risk to this forecast.

Kate Hickie at Capital Economics said the data would exacerbate concerns about the health of the household sector.

In particular, the sizeable slowdown in real retail sales growth in the first quarter suggests that real consumption growth eased notably. And the outright fall in nominal retail sales in March means there wasn’t any momentum in spending going into the second quarter either.

For much of the Asian session, the Aussie dollar was far and away the worst performer. However other currencies have also been trending lower thanks to strength in the US dollar.

The yen was next worst, down 0.4 per cent, while the Swiss franc shed 0.3 per cent and the euro was now down 0.2 per cent, with those two currencies dented by broadly milder global nerves.

The US dollar index was 0.3 per cent higher.

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