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US retail sales push the greenback higher

The greenback came back to life as a strong retail sales print continued to drive tapering expectations.

Retail sales for November climbed 0.7% (versus 0.6% expected) with some upward revisions. However, unemployment claims were much higher than expected at 368,000 (versus 321,000). Markets largely ignored this jobs reading given the strong jump we saw in non-farm payrolls last week. Looking ahead to next week’s meeting, it certainly seems the size of the taper is now the issue as opposed to when tapering will begin.

Bond yields continued to grind higher, prompting a jump in the USD. This had a negative impact on commodities and related currencies. AUD/USD was already on the back foot on Glenn Stevens’ comments talking down the AUD. Stevens said he expects to see the AUD trade at around 0.85 against the greenback. AUD/USD dropped to a low of 0.8917 and remains under pressure early in Asia. Should this level be breached, the next level to look out for could be 0.8848 which is where August lows were.

USD/JPY approaching multi-year highs

USD/JPY is back above 103 and rallied to a high of 103.35 as the retail sales data drove the USD higher. Weekly fund flows data out of Japan continues to show a pick-up in foreign bond buying by the Japanese which is negative for the yen. The pair has also managed to extend its gains in Asia, rallying to a high of 103.66, its highest since May 23. Traders will likely be eyeing May highs at 103.74 as short-term targets. A break above that level could lead to further gains with renewed buying interest. Beyond that level, USD/JPY will be looking to progress to its highest level since October 2008.

The US economic calendar is very light today with PPI being the most significant reading to look out for. Tapering talk will remain the dominant theme along with developments around Stanley Fischer being appointed as Janet Yellen’s deputy. 

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