AUD/USD, ASX 200 bulls unfazed by retail sales slump

• Australian retail sales slid 2.7% in December, larger than the 1.7% drop expected
• Shifting spending patterns around Black Friday sales are making it difficult to seasonally adjust the data
• AUD/USD and ASX 200 have ignored the data, choosing instead to focus on international factors.

AUD/USD and the ASX 200 have ignored a larger-than-expected slump in Australian retail sales in December, adding to earlier gains in the wake of the release.

Australian retail sales slump

Australia’s Bureau of Statistics (ABS) reported sales tumbled 2.7% from November where they rose by a smaller than originally reported 1.6%, making the miss on the 1.7% decline expected even deeper. The ABS was at pains to point out the lumpy monthly results reflect shifting spending patterns, with sales previously made in December being brought forward into November due to the increased popularity of Black Friday and Cyber Monday sales.

“Turnover fell in all the non-food industries that had been boosted by Black Friday sales in November,” the ABS said. “Household goods retailing had the largest fall, following the largest rise last month. The next biggest drops were in department stores, clothing footwear and personal accessory retailing, and other retailing.”

Over the quarter, nominal sales grew just 0.46%, hinting that when adjusted for inflation and strong population growth, spending remains weak following an unusually strong period during and coming out the pandemic. As freedoms have been restored, brining greater choice on where to spend their money, Australians have been shifting their focus away from goods to experiences.

Quarterly retail sales volumes likely went backwards in the December quarter, creating early downside risks for Q4 GDP. The ABS will release that information next week.

Australian markets focusing on global factors

Australian financial markets brushed the weak data to one side, choosing instead to continue the rebound in risk appetite seen towards the end of the North American session. With the US Treasury’s quarterly refunding announcement for Q1 undershooting previous borrowing estimates by $55 billion, markets responded positively despite not knowing the breakdown of how the debt will be issued, seeing US yields and dollar fall while equities rallied. That has largely continued in Asian trade on Tuesday.

With the Fed interest rate decision this week unlikely to deter current market expectations for up to six rate cuts this year, it’s difficult to see any of the known risk events this week – outside of geopolitics or unusually large earnings miss from the tech giants – threatening the risk-on mood. Indeed, later today markets will receive the latest US JOLTS survey, a release bond and equity markets have typically rallied around in recent months as it signals loosening labour market tightness.

For AUD/USD and the ASX 200, a continuation of this environment would normally help to foster further gains, setting the latter up for a potential test of prior record highs.

AUD/USD breaks higher

Having closed above at .6610 for the first time in two weeks, AUD/USD rallied above .6620 following the retail sales report before easing lower to retest prior resistance. How it interacts at this level may inform whether a push towards resistance at .6650, or a reversal to uptrend support around .6480, comes next. Should the risk positive mood hold, the path of least resistance would likely be higher.

ASX 200 eyeing record highs

For ASX 200 futures, they broke downtrend resistance overnight and have gone on with the move during the day session. While price may gravitate towards the highs set in December, those seeking to initiate longs at these levels may want to see a retest of prior downtrend resistance to improve the risk-reward of the trade, allowing for a stop-loss to be placed underneath. Below, bids have emerged from 7517 and again at 7427.

-- Written by David Scutt

Follow David on Twitter @scutty

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