Australian dollar takes a beating in the global FX space as retail sales slump, but RBA expected to show a steady hand tomorrow

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Category: Australian Dollar News

Written by Sam Coventry

A look at the performance of the Australian currency this morning in the wake of some dire economic readings.

The Australian dollar (Currency:AUD) is taking a beating on the global FX space this morning. The pound sterling is the one currency that has really put the boot in owing to some improved manufacturing reading's:

The pound Australian dollar exchange rate is 0.85 pct higher on Friday night's closing level at 1.5507.

The euro Australian dollar rate is 0.68 pct higher at 1.2272.

The Australian dollar to US dollar exchange rate is 0.77 pct down at 1.0243.


Woe for the Aussie currency came on the back of poor Australian retail sales which unexpectedly declined in July by the most in almost two years and company profits dropped for a third straight quarter, sending the local currency to a five-week low.

Retail sales fell 0.8 pct m/m in July, disappointing market expectations which were for growth of 0.2pct.

"The implications for our medium-term forecasts are limited due to the one-off impacts of the payments to households. As a result, there are also limited implications for monetary policy from this release. We believe the RBA Board will leave the cash rate unchanged tomorrow at 3.5%. Due to the lags associated with monetary policy, the Board is likely to wait and assess the impact on the economy of earlier easing (around 100bps to lending rates). Nevertheless, we continue to expect the RBA will maintain an easing bias with a 25bps rate cut expected in November, and a further cut in Q1 2013," say ANZ Bank.

With regards to tomorrow's Reserve Bank of Australia (RBA) meeting, analysts remain of the opinion that no decision is likely:

"We are not expecting any change from the RBA at tomorrow’s meeting, however QE hints from the Fed and the slowing momentum in domestic and Chinese data point to Australian yields heading lower" say Westpac Institutional Bank.

Also weighing on the Australian dollar was China. Two Chinese manufacturing surveys both showed a decline in August with the country's official PMI coming in at 49.2, a nine-month low and the HSBC PMI final number being below its preliminary reading of 47.8 at 47.6.