Australian Dollar "Deflated" by Disappointing Retail Sales

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The Australian Dollar was weaker after disappointing domestic retail sales figures were released.

The Pound to Australian Dollar exchange rate trades 0.40% higher on the day after the ABS said retail sales fell 0.4% month-on-month in March, which was down on February's 0.2% expansion and expectations for another 0.2% print.

The Australian Dollar was 0.60% lower against the U.S. Dollar at 0.6527. "AUD/USD deflated by disappointing Australian retail sales," says Robert Howard, a Reuters market analyst. "0.6515 is lowest level since Thursday (0.6511 is 21-day moving average)."

Joseph Capurso at Commonwealth Bank of Australia says AUD fell after Australian retail sales weakness highlights yet again that high interest rates are impacting discretionary spending.

However, with non‑discretionary inflation high, CBA has shifted its view for the first rate cut from September to November.

This is a 'hawkish' outcome for RBA rate expectations and, on balance, would be supportive of the Australian Dollar outlook as it confirms this will be one of the last major central banks to cut interest rates.

However, Capurso points out that the implications for AUD might be limited because the market is already pricing in a chance of an RBA hike.

Expectations for a further rate hike grew in some corners of the market after last week's above consensus inflation print that suggested near-term inflationary pressures were actually beginning to build once more.

This suggests that a great deal of 'hawkish' pricing is already in the price of AUD. It also suggests that the currency is at risk of selling pressure on any data that disappoints expectations and raises the odds of earlier RBA interest rate cuts.