Global equities mixed, Aussie dollar jumps and US dollar sells off on flat retails sales, gold and silver higher, ASX futures down 21 points

****Please note that I will be on leave from 18 May to 2 June, morning coverage during that time will be sporadic****

Foreign exchange traders continued to unwind long US dollar positions last night, in light of weaker than expected US retail sales. The deviation from the market consensus (0% versus an expected 0.2% figure) wasn't particularly large, and this is a great example of the continued focus the market is putting on the US Federal Reserve's first rate hike timing. As you can see from today's first chart, the AUDUSD currency pair (which will rally when the US dollar sells off) has launched past previous selling resistance at the US 80c level and is now trading comfortably above 81c. Today's second chart shows the movement in percentage terms of the Australian dollar and the US dollar index from 4pm yesterday - the AUDUSD is up 1.99% while the US dollar index only sold off by 0.91% at the time it closed. I show this chart because we're not seeing an Aussie dollar being driven purely by the consequence of the US dollar sell-off; rather, we're seeing FX traders jumping on the carry trade that exists by buying the Australian dollar (where cash rates are at 2.00% and stable) and funding that purchase by selling the US dollar (where cash rates are 0.25% and seemingly going nowhere for some time).

Up until mid-March we were seeing a strong theme in the Australian dollar that was dominated by the expectation that the Reserve Bank of Australia(RBA) would continue to cut rates at every second meeting or so until we at least reached 1.75% or maybe 1.50% at the lower end. The Australian dollar was trending lower and RBA Governor was calmly willing it down to his desired level of the low 70c mark or beyond. The RBA has lost control of the Australian dollar now and after having flagged the notion that the Bank no longer has an inclination to ease monetary policy in Australia, FX traders are exploiting the premise that this week's Australian Federal Budget is not forcing the RBA to go back and cut rates, which would have happened if the Australian Government had have gotten tougher on spending than they did this week.

Another instrument benefiting from the sell-off in the US dollar, and the expectations that low US interest rates will persist for longer, is US dollar spot gold (XAUUSD). Today's last chart shows the biggest single-session move that has occurred since January this year and it has boosted XAUUSD to the very top of its three-month intra-day range


Today‚Äôs charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to open a Rivkin Trader account now.

Upcoming economic announcements: Japanese foreign asset purchases at 9:50am, Chinese foreign direct investment at 9:50am, US initial jobless claims at 10:30pm, all Sydney time.


This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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This article contains information about foreign exchange contracts, which are considered complex financial products. Please click here to read ASIC's foreign exchange trading article before considering an investment in foreign exchange contracts. 

This article contains information about CFDs, which are considered complex financial products. Please click here to read ASIC's "Thinking of trading contracts for difference?" document before considering an investment in CFDs.
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