Today’s retail sales release will be key. Any better than expected outcome should be taken as an indication of resilient domestic conditions to the benefit of price developments. It must already be noted that that inflation expectations as measured by 5y forward breakeven rates have been rebounding of late, irrespective of weaker data.
As a result to the above outlined conditions we stay of the view that the USD should be bought on dips, in particular against commodity currencies.
When it comes to the AUD, however, the focus will shift to tomorrow’s employment data.
Rebounding business activity may provide a first indication of a more resilient labour market. If so, there is further room of stabilizing rate expectations to the benefit of the currency.
In New Zealand RBNZ Governor Wheeler stressed that further easing seems likely although it will depend on incoming data. We remain of the view that the NZD is an attractive sell on rallies.
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