The Australian dollar is slightly lower on Monday, trading at 0.6635 in Europe. AUD/USD is coming off a disappointing week, with losses of close to 1%, as risk aversion remains high. The banking crisis may have eased, but there are fresh worries, such as a credit crunch. Australia releases retail sales on Tuesday (Australia time), with the markets braced for a slowdown.
Australian retail sales expected to de-accelerate
Australian retail sales are a key gauge of consumer spending, and things looked rosy in January, when retail sales hit 1.9%, rebounding from -4.0% a month earlier. The estimate for February is a modest 0.4%. High inflation and rising interest rates are taking a toll on consumer spending. The economy expanded by 2.7% y/y in the fourth quarter of 2022, with strong consumer spending a major driver of the growth.
The Reserve Bank of Australia raised rates by 25 basis points earlier this month, bringing the cash rate to 3.60%. The markets are projecting a terminal rate of 4.2%, which would mean at least two more rate hikes. We’re likely to see another 25 bp increase at the April 4th meeting.
The bank crisis continues to weigh on risk sentiment, and the latest development centered on giant Deutsche Bank, as its costs against default soared. Deutsche Bank shares plunged 8.2% on Friday, but this latest scare should blow over, as the bank has reeled off 10 straight quarters of profit.
Central bankers are scrambling to reassure jittery investors that the banking system is safe. RBA Assistant Governor Kent has said that Australian banks are “unquestionably strong” in the midst of the “strained” conditions in the global financial markets. On Friday, the US Treasury Department said that the Financial Stability Oversight Council, which is a group of financial regulators, agreed that the US banking system was “sound and resilient”. The stresses on the banking system are being closely watched by central banks, which are fearful of the contagion spreading as well as a credit crunch, which could dampen economic growth.
AUD/USD technical
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AUD/USD faces resistance at 0.6676 and 0.6728.
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0.6594 and 0.6542 are providing support.
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