The Australian Dollar to US Dollar (AUD/USD) exchange rate surged by 1.4% on Wednesday as US data fell flat, with the pairing achieving a high of 0.8118 during the European session.
The Australian Dollar began Wednesday trending in a softer position despite the currency receiving some support from a well-received Federal Budget.
‘Aussie’ losses occurred following the publication of Chinese Retail Sales and Industrial Production data.
China is Australia’s main export market, so signs of slowing growth in the Asian nation tend to have a detrimental impact on the Australian Dollar.
Industrial production was shown to have increased by less-than-expected on the year in April while retail sales growth slowed from 10.2% to 10%.
The AUD/USD exchange rate hit a low of 0.7961
However, the AUD/USD currency pair was able to break out of its recent funk and jump to a high of 0.8118 over the course of trading.
The ‘Aussie’s recovery against its US peer was triggered by less-than-impressive retail sales data for the world’s largest economy, data which appeared to push the first interest rate increase from the Federal Reserve even further into the distance.
Economists had only expected a 0.2% rise in consumer spending, but the stagnation which actually occurred came as a bit of a shock – particularly as consumer spending accounts for such a high percentage of total US growth.
ING economist James Knightley said of the retail sales data; ‘US retail sales for April are softer than hoped, coming in flat on the month versus a 0.2% month on month consensus. Admittedly, the March figure was revised higher by two tenths of a percentage point, but the overall story is one of subdued spending by consumers. Indeed, strip out the volatile components of autos, gasoline and building materials to come up with the so called “control” group – this has a better fit with overall consumer spending trends – and we saw flat growth versus a consensus forecast of 0.5% growth.’
He added; ‘Consequently, we still aren’t really seeing the big recovery that was anticipated in the wake of the weather depressed first quarter. This just really reinforces the view that a June hike isn’t happening and that September looks the more probable start point.’
The US Dollar weakened across the board in reaction to the figure and demand for higher-risk and emerging market assets increased. With Australian data in short supply, the AUD/USD exchange rate may well hold gains during the local session.
The next ecostats likely to impact AUD/USD trading are the US Initial Jobless/Continuing Claims numbers.
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