n dollars in Sydney, Friday, September 22, 2017. The Aussie dollar remained below 80 US cents on Friday morning with lower iron ore prices lower, signals that a US interest rate hike was coming. (AAP Image/Joel Carrett) NO ARCHIVINGThe n dollar is headed back toward a near four-month high after signs consumers may not be as downbeat as previously thought bolstered sentiment around the currency.
The n dollar jumped from around US78.40?? to over US78.80?? on Thursday and extended those gains into Friday’s session when it briefly traded over US79?? before falling back to US78.78??. It last traded above US80?? in September.
The Aussie surged on Thursday following data that showed retail sales climbed 1.2 per cent in November, trouncing expectations for a 0.4 per cent increase.
The retail sales surge was led by gains in household goods and other retailing industries due to iPhone X sales and discounting sales events.
“The Aussie dollar benefited from of all things iPhone sales,” noted Stephen Innes, head of trading for APAC at OANDA.
AMP Capital economist Diana Mousina said the retail sales data implied there was now an upside risk that the n consumer might not be as large a drag on the economy as consensus is assuming in 2018.
“While the iPhone and Black Friday sale impacts are a one-off and won’t be repeated in December, the strength in spending on discretionary items indicates that consumers are still willing and able to spend on retail items, but this spending is selective,” Ms Mousina said.
Credit Suisse economists said, however, there were reasons to believe November’s spike in sales could be an aberration and may not indicate that consumers are more confident.
“Advance estimates from the n Retailers Association suggest that trend retail sales growth slowed in December. In other words, not all of the November gain was sustained,” they said.
Slowing house prices are one of the main reasons they are cautious on consumer spending, noting an “overwhelmingly powerful” link between spending and house prices.
“We remain of the view that bank officials will talk hawkishly in the presence of strong data, but not actually carry through with tightening for as long as Sydney house prices are falling.”
Interest rates could even fall if labour market conditions deteriorate, they said. Modest consumer spending in 2018
Meanwhile, Macquarie economists are expecting consumer spending to grow modestly in 2018 compared to last year.
“Consumers appear to be feeling a little better heading into 2018,” the economists said. “Wages growth is likely to strengthen gradually, jobs growth should remain solid over the year, and the broader global/domestic backdrops are improving.”
European growth has been particularly strong of late and the n dollar held onto Thursday’s retail sales-inspired gains after a meeting of the European Central Bank where policy makers said they are open to tweaking monetary policy, noted NAB currency strategists.
“If we hold the US78.90?? area first up this morning, further gains are in prospect,” they said.
Chris Weston, chief market strategist at IG Markets, noted that markets are broadly more positive as growth is improving and investors appear to be taking on more risk.
Against that backdrop “I just think there’s an ill feeling toward the US dollar,” he said.
That US dollar weakness is feeding into commodity prices and that’s feeding into better terms of trade for which is supportive for the n dollar, he noted.