Australian dollar slips on soft consumer confidence

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Australian dollar slips on soft consumer confidence

The Australian dollar is down sharply on Tuesday. In the North American session, AUD/USD is trading at 0.6337, down 0.52% at the time of writing.

Consumer confidence slides

Australia’s Westpac consumer confidence index declined by 2% in December, from 94.6 to 92.2. This followed a sparkling 5.6% gain in November and missed the forecast of a 3.2% gain. Consumers have been squeezed by sticky inflation elevated interest rates and uncertainty over the global outlook.

The Reserve Bank of Australia has largely contained inflation, which was unchanged in October at 2.1%. This is comfortably within the RBA’s 2% target but underlying inflation, which rose in December to 3.5% from 3.2% remains a concern. RBA policymakers want to see further evidence that inflation is sustainably within the 2% target and consider underlying inflation a better gauge for that than headline inflation.

There was no surprise as the RBA maintained rates at 4.35% at last week’s meeting, extending its “higher for longer” policy for a thirteenth straight month. The RBA has become an outlier among the major central banks, as it’s yet to lower interest rates. The central bank has signaled that a rate hike remains on the table, although the market expects that the RBA’s first rate will be a cut.

US retail sales sparkled, another sign that the US economy remains robust. Retail sales jumped 3.8% y/y in November, following an upwardly revised 2.9% in October. This was the highest annual gain since last December. Monthly, retail sales rose 0.7%, above the upwardly revised 0.5% gain in October and the market estimate of 0.5%.

US consumers have opened their wallets for the holiday season and motor vehicles and online sales helped drive the gain. The strong retail sales report didn’t change expectations for a rate cut on Wednesday, which stand at 99%, according to the CME’s FedWatch.

AUD/USD Technical

• There is support at 0.6308 and 0.6256


• 0.6390 and 0.6442 are the next resistance lines

Source: Australian dollar slips on soft consumer confidence