Australian Dollar Rises on Strong Retail Sales, Boosting Rate Hike Prospects
The Australian dollar experienced a rise on Monday fueled by a robust retail sales report, which further strengthened the case for higher interest rates in the country. Despite global risk sentiment remaining volatile, the Aussie managed to climb by 0.3% to $0.6353. Last week, it had already gained 0.4% following a strong domestic inflation report, raising expectations of an imminent rate hike. However, the currency is still hovering near its one-year low of $0.6271, encountering resistance at 64 cents.
Meanwhile, the New Zealand dollar saw a 0.3% increase, reaching $0.5825 after experiencing a decline of 0.3% last week. During that time, it briefly touched a one-year low of $0.5774. Resistance levels for the kiwi are notably heavy at 59 cents.
Typically, commodity-sensitive currencies like the Australian and New Zealand dollars are influenced by global risk sentiment. Presently, risk appetite has been subdued due to Israel’s efforts to surround Gaza’s main city, escalating tensions with Iranian-backed Hamas militants.
A recent data release showed that Australia’s retail sales surged by 0.9% in September compared to August, marking the largest increase in eight months. Analysts had predicted a 0.3% rise, making the actual result even more impressive. Consequently, this led the market to slightly increase the odds of a rate hike in November, from 58% to 61%.
UBS analysts commented on the retail data, stating that it reinforces their belief that the Australian economy is surprisingly resilient. They added that if this trend continues, it raises the risk of an additional 25 basis point rate hike by the Reserve Bank of Australia (RBA) in February 2024.
Head of Investments at VanEck, Russel Chesler, suggests that the Australian dollar could experience some short-term strength if the RBA proceeds with the anticipated rate hike, while the US Federal Reserve keeps interest rates unchanged.
The prospect of higher interest rates had an impact on the Australian bond market, as prices declined. The three-year government bond yield reached a 12-year peak of 4.388%, rising by 7 basis points, while ten-year yields hit 4.889%, the highest level seen since 2011.
In conclusion, the Australian dollar witnessed a rise driven by strong retail sales, adding to the likelihood of an interest rate hike. Despite global risk sentiment being hampered by ongoing geopolitical tensions, the Aussie managed to make gains. The New Zealand dollar also experienced a modest increase after a recent decline. With positive economic data and the potential for rate adjustments, both currencies are garnering attention in the forex market.
