THE TAKEWAY: Retail sales, trade balance improve > Event risk on the horizon > Australian Dollar strengthened
The Australian Dollar traded higher versus the U.S. Dollar as sales for the retail industry beat expectations, registering a 1 percent increase in June, up from 0.5 percent in May. Furthermore, quarter-over-quarter sales for the second quarter increased by 1.4 percent marking the first quarterly growth rate since March 2011.
Moreover, the Aussie trade balance posted its first positive reading since turning negative in December 2011. The net outflow of goods leaving the country increased to AU$ 9 million in June, up sharply from the AU$ -285 million trade deficit in the prior month. An increase in net exports implies that the demand for the home currency should increase commensurately, as foreign importers must convert their own currency into Australian Dollars to settle the acquisition.
Later today the ECB will announce their interest rate policy which could stoke risk-appetite or lead investors to run for safety into more liquid assets like the U.S. Dollar. In addition, the Aussie currency is sensitive to changes in interest rates as it’s one of the highest yielding pairs to hold. Currently, markets appear to be anticipating a 17 percent probability of a 25 basis point cut in rates by the RBA on August 7.
AUD/USD, 5 Minute Chart