Aussie Dollar Up on Retail Sales, Japan Sees Inflation Surprise

The Aussie dollar up on Australia’s retail sales misses expectations; Japan inflation surpasses forecast. There is a potential impact on currencies and commodities.

Australia experienced a modest 1.1% month-on-month (MoM) growth in retail sales for January, falling short of the market consensus of 1.6%. Despite this miss, various sectors, such as clothing, footwear, and household goods, exhibited a relatively robust recovery following December’s decline. The Australian dollar, buoyed by the report, saw an uptick from 0.6490 to a peak of 0.6522.

In Japan, core inflation surpassed market expectations, recording a 2.6% annual rate for January against the forecasted 2.3%. Despite the higher-than-anticipated figure, the core Consumer Price Index (CPI) remained unchanged from the previous month. Attention, however, was drawn to the hawkish remarks of Bank of Japan board member Hajime Takata, who advocated for reevaluating the current ultra-loose monetary policy, citing the 2% inflation target as “finally in sight.” Takata’s statements significantly strengthened the Japanese yen, causing the USD/JPY pair to plummet by as much as 100 pips, reaching a low of 149.70.

Looking ahead to the European and US sessions, with expectations of a potential re-acceleration in inflationary pressures based on recent Consumer Price Index (CPI) and Producer Price Index (PPI) data, demand for the US dollar could surge if January’s Consumption Expenditures (PCE) Price Index readings exceed forecasts. Additionally, continuing the downward trend in unemployment claims, indicating the strength of the US labor market, may further bolster the greenback.

Aussie Dollar Up on Retail Sales, Japan Sees Inflation Surprise

Potential volatility in the Dollar Index (DXY) looms as anticipated data releases approach, with a prevailing weak bearish bias. Gold prices, on the other hand, might face selling pressure during the US session if the data prompts a dollar rally.

In the realm of central banks, the Federal Reserve maintained its Federal Funds Rate target range at 5.25% to 5.50% for the third consecutive meeting. The Committee emphasized its commitment to achieving maximum employment and inflation at a rate of 2.0% over the longer run, with a cautious approach towards any adjustments in the target range.

Meanwhile, the Reserve Bank of Australia (RBA) opted to keep the cash rate target unchanged at 4.35%, marking the sixth pause out of the last seven board meetings. While easing in the December quarter, inflation remained elevated at 4.1% year-on-year (YoY).

The Reserve Bank of New Zealand (RBNZ) left the Official Cash Rate (OCR) unchanged at 5.50% for the fifth consecutive meeting, expressing confidence in the current OCR level’s ability to manage demand.

The Bank of Japan reiterated its commitment to Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control (YCC) to achieve the 2.0% price stability target.

The European Central Bank (ECB) maintained its key interest rates for a third consecutive meeting, underscoring the continued decline in underlying inflation and the dampening effect of tight financing conditions on demand.

In summary, Upcoming data releases and central bank actions position the markets for potential shifts, prompting currencies and commodities to brace for volatility in the near term.

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