What do soft housing and retail data mean for the AUD/USD?
In a week packed with global macro and micro releases, the key events locally are a series of updates on the Australian housing market, which continues to cool as higher interest rates reduce affordability.
Kicking things off today, housing credit growth for December rose by just 0.3%, the slowest pace since October 2022.
At the same time, Retail sales fell by 3.9% in December (vs -0.2% expected), for the most significant monthly fall since August 2020. The fall in December unwinds the 1.4% gain in November, boosted by Black Friday cyber sales.
- Core Logic Dwelling prices (Wednesday) are expected to show housing prices fell -1.1% in the seasonally quiet month of January, extending the correction that began in May 2022
- Building Approvals fell by 9%, following a 56% fall in October. The market is looking for a modest bounce back of +1% in December. Building Approval data is a notoriously volatile data set, and expectations range from -5% to +8%
- Housing Finance fell for a sixth straight month in November to be 24.8% below the peak of January 2022. The decline is expected to continue in December, with the market looking for a 2.5% fall in December (Friday).
Following the release of hotter-than-expected Australian inflation data last week, the RBA is widely expected to lift its official cash rate by 25bp from 3.1% to 3.35% next Tuesday. The interest rate market then has another 50bp of rate hikes priced by August of this year, which would take the cash “peak” rate to 3.85%.
The RBA has made clear its “priority is to re-establish low inflation and return inflation to the 2–3 per cent range over time.” While a series of RBA rate hikes in 2023 would be another blow to the housing market, they would be good news for the AUD/USD, already enjoying the tailwinds of the China re-opening and higher commodity prices.
Overnight the past 24 hours, the AUD/USD has fallen back to .7050 on soft retail sales data, risk aversion flows, and with the US dollar in demand overnight for month-end rebalancing flows.
After reaching and marginally breaching our August .7137 target from this article in Mid-January here last week, we expect to see the current pullback in the AUD/USD continue towards uptrend support at .6900c.
At worst, the pullback may extend to the 200-day moving average at .6810 to work off overbought readings and to rebuild energy for its next leg higher towards .7300c.
AUD/USD daily chart
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