Following on from a gentle decline in yesterday's domestic trade, the Aussie dollar has continued south-bound movements overnight coinciding with weakness from US equities which saw the S&P 500 close down 1.3 percent. Market moving themes overnight saw the focus back on Middle East tensions which continues to drive the price of oil higher, whilst outperforming US data took a back seat resulting in moderate USD strength as the session drew to a close.
It's been a busy 24 hours for the local unit - although losing ground, price action remains resilient above the 101 US cents levels at current levels of 101.35 US cents. To recap the events of yesterday, local economic feedback showed retail sales grew 0.4% in January against the expected 0.3% following a previous rise of 0.2%. Data showed food items and department stores headed up the advance whilst housing retail purchases underperformed. Also in focus was the RBA interest rate decision with saw the central bank leave rates on hold as anticipated. The post decision statement reflected that of recent comment from officials with the RBA stating. Mildly restrictive stance of monetary policy remained appropriate - Inflationary pressures are expected to remain within target partly attributed to the strength of the Aussie dollar.
The local unit has shown reliance above US dollar parity in recent times despite significant headwinds both local and abroad. Importantly, market participants up this point appear largely undeterred by China's step to engineer a slow down and it is doing little to stem longer term prospects and yesterday the Australian Bureau of Agriculture Resource Economics (ABARE) predicted demand for Aussie resources such as agriculture; minerals and energy will increase 14% in 2011 before moderating in 2015. On this general basis, the trajectory appears to be north-bound, although the trading channel between 100 and 102 US cents is paramount - a convincing break through either support or resistance suggests the start of a longer term reversal. The second and very important part of the equation is the appeal of the US dollar as the US economy regains composure. Something that rings true is recent comments by Fed Chairman Ben Bernanke when responding to questions on the currency depreciation war debate - the best fundamentals for the dollar will come when the economy is growing strongly. This immediately brings to the fore the missing link in the US recovery - Jobs. Without this confirmation of a sustained employment recovery, we're likely to see the US dollar to remain at this critical juncture and continue to cohere to this hybrid of influences until economic signpost point to a jobs-based recovery - which by default should keep the window of opportunity for A$ support open. A sustained employment rebound underpinned by positive language by the Fed will likely be the watershed event to restore greenback appeal, to put it simply its then time for the greenback to play catch up. From a shorter term technical perspective, we're eyeing parity as support with the 102 US cent levels show strong short and longer term resistance. A break of 102US cents could provide new levels of near-term support.
The day ahead will be see the Aussie contingent on local 4Q GDP which is due for release at 11.30 AEST. Economist's expectations suggest fourth quarter growth of 0.6 percent from a previous 0.2 percent - although, in light of recent strength of local economic feedback we're seeing 12th hour revisions to the upside from economists.