The Australian dollar has found strength in the European session and is pushing to break out of its recent trading range versus the US dollar. The Aussie dollar US dollar has jumped to a 10-day high of US$0.6930. It is holding this level at the time of writing.
The signing of the long awaited first phase trade deal between the US and China, the world’s two largest economies, has helped ease recent concerns over global growth. As a result, sentiment has improved, boosting demand for perceived riskier assets.
The deal is a win-win for the Australian dollar. The Aussie dollar is receiving a boost as it is a perceived riskier currency. However, the Australian dollar is also being lifted because China is Australia’s principal trading partner. The end of the trade dispute is a positive for the Chinese economy. It is therefore also a positive for the China proxy, the Australian dollar.
There is no high impacting Australian data to be released today or tomorrow. This means that the Aussie will trade on sentiment and at the will of the US dollar.
US Retail Sales Up Next
The safe haven US dollar was on the back foot following the signing of the trade deal on improved risk sentiment. The details of the deal have not been released and the US will not remove tariffs until after the US presidential election in order to first observe China’s compliance with its commitment.
Investors will now switch their attention to US retail sales data. Analysts are expecting retail sales to have increased 0.3% month on month in December, up from 0.2% in November. Given that the US labour market remains solid with strong jobs growth and 2.9% wage growth, consumer confidence is strong. When households are confident, they spend more. The Michigan consumer confidence index registered 99.3 in December; this is the highest score since 100 in May.
As a result, analysts are expecting a strong Christmas buying season. Solid retail sales data could boost the dollar. This is because it not only is good news for the consumer driven US economy, but also because strong retail sales can indicate a pickup in inflation down the road.
|What do these figures mean?|
|When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written:
1 USD = 0.6784 AUD
Here, $1 is equivalent to approximately A$0.67. This specifically measures the US dollar’s worth against the Australian dollar. If the Aussie dollar amount increases in this pairing, it’s positive for the US dollar.
Or, if you were looking at it the other way around:
1 AUD = 1.4739 USD
In this example, A$1 is equivalent to approximately $1.47. This measures the Australian dollar’s worth versus the US Dollar. If the US dollar number gets larger, it’s good news for the Aussie dollar.