Retails sales help lift the USD

The dominant theme in the FX space was a recovery in the USD after having gone through a period of underperformance. 

Sentiment was still reeling from Friday’s disappointing payrolls reading, and this retail sales reading had been expected to disappoint by many analysts citing weather-related issues as the main drawback. The headline print was up 0.2% (versus 0.1% expected), while ex-auto climbed 0.7% (versus 0.4% expected). To some extent this made a case for the argument Fed members have been a part of over the past week regarding the ‘misleading’ payrolls print. Fedspeak since the payrolls release has also been overwhelmingly in favour of tapering with Fisher and Plosser being the latest to voice their opinion.

USD/JPY bid higher

Yesterday I discussed USD/JPY and suggested traders could using dips as an opportunity to buy the pair. The dip into 103 was taken advantage of and the pair is holding its ground above 104 in Asia today. There isn’t much going on in Japan this week and as a result most of the volatility is likely to come from the USD side of the equation. Out of the US today we have PPI, the Empire State manufacturing index and the Beige Book due. Fed member Charles Evans is also set to speak and he might balance out some of the more hawkish Fed comments we’ve hear this week.

AUD back under pressure

We have seen a bit of a bounce in the AUD against the greenback after a big pullback overnight. AUD/USD is back below 0.90 as the sellers took advantage of the recent move above 0.90 to short the pair. While the pair has stabilised in Asia, I still feel traders will be eyeing a move back towards December lows in the short term. There hasn’t been much at all on the local economic front except new motor vehicle sales which showed a fall from the previous month. Any moves into the 0.90 region remain a good opportunity to sell.

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