Scan to Download ios&Android APP

Australia dollar finally cracks resistance with help from robust data


Share this article

Have a confidential tip for our reporters?

Australian dollars are seen in an illustration photo February 8, 2018.
Australian dollars are seen in an illustration photo February 8, 2018.

By Wayne Cole

- The Australian dollar pushed to three-week highs on Friday as a solid report on retail sales showed consumers holding up well to surging inflation, setting the scene for further increases in interest rates.

It was enough to lift the Aussie 0.5% to $0.7135 AUD=D3 and finally crack resistance at $0.7126 after four straight days of trying. That brought gains for the week to 1.2% and put some distance between the currency and its recent two-year trough of $0.6829.

The New Zealand dollar also added 0.5%, to reach $0.6505 NZD=D3, but had yet to break resistance around $0.6514. The kiwi was up 1.5% for the week so far and also some way from its recent low, $0.6219.

Both currencies benefited from a pullback in the U.S. dollar as markets wagered the Federal Reserve's plans to raise interest rates aggressively over the next few months would see the pace of tightening slow later in the year, or even allow for a pause.

Markets see a June rate rise from the Reserve Bank of Australia (RBA) as a done deal, given the economy is proving resilient to high inflation and global headwinds.

Data out Friday showed retail sales climbed 0.9% in April as consumers spent more on eating out. Retail sales were up a healthy 9.6% on a year earlier. nL2N2XJ01V

Futures 0#YIB: are priced for quarter-point rate hikes in both June and July, and a rise of 50 basis points in August following inflation data for the second quarter, which are likely to be red hot.

The market even has interest rates reaching as high as 2.5% by the end of the year, an outlook most economists view as overly aggressive, given Australians hold record amounts of debt.

Kristina Clifton, a currency analyst at CBA, noted the RBA's first hike, in early May, had already taken a chunk out of house prices in Sydney and Melbourne and the weakness was likely to spread nationally.

"We see a relatively shallow tightening cycle by the RBA with a peak of 1.60% in early 2023, while financial markets pricing currently puts the peak above 3.0%," said Clifton. "An eventual wind back of this pricing will be a headwind for the AUD."

The Reserve Bank of New Zealand is far ahead in its tightening campaign, having hiked by another 50 basis points to 2.0% this week.

It projected rates could reach 3.4% by the end of the year and ultimately peak at 4.0%, higher even than hawks in the market had expected.


(Reporting by Wayne Cole; Editing by Bradley Perrett)

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

Still looking for a broker you can trust?

Join the 400.000+ traders worldwide that chose to trade with

1. Create & verify your account

2. Make your first deposit

3. You’re all set. Start trading