Australian dollar bumps up on data amid global macro tailwinds

The Australian dollar is holding the high ground as it continues to press toward the five-month peak seen on Monday near 0.6950. A weaker US dollar and China re-opening paved the way ahead of today’s CPI and retail sales data.

Today’s retail sales came in at 1.4% month-on-month for November, notably above the 0.6% forecast and -0.2% previously. The year-on-year figure to the end of November was 7.4% rather than the 7.2% anticipated and 6.9% prior.

The figures show a downward revision to retail sales earlier in 2021 but an acceleration in November.

The monthly CPI gauge for November was also released today and the headline CPI year-on-year printed at 7.4%, above estimates of 7.2% and 6.9% previously.

The monthly CPI comes ahead of the quarterly CPI read that will be known on January 25th. The quarterly number will be closely scrutinised ahead of the RBA’s February meeting.

The monthly number does not include the full basket of inputs but might provide a clue to the quarterly figure.

Rising price pressures could provide a headache for the RBA as they seek to stare down inflation while keeping the economy chugging along.

Tomorrow’s trade balance might provide some cushioning should the RBA continue its tightening into 2023. A Bloomberg survey of economists is looking for an AUD 11.3 boost to the Australian economy for November.

China tilted its Covid-19 policy in December and a re-opening of the world’s second-largest economy may provide further opportunities for Australian exports. The frosty relationship between Australia and China appears to be thawing and this could add further stimulus to the Australian economy.

Base metals such as iron ore, aluminium, copper and nickel have all posted solid gains since the policy change. These are all products that Australia export on a large scale.

The weaker US dollar has also assisted commodity prices. Conjecture around the Federal Reserve’s rate path continues to weigh on the ‘big dollar’. AUD/USD could see bouts of volatility in the month ahead with crucial US CPI data this Thursday ahead of Australian CPI later this month.

Then in the first week of February, the Fed will be making a decision on rates followed by the RBA on the 7th of February.

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