AUD/USD eyes retail sales

The Australian dollar is in positive territory on Monday after an uneventful week. In the European session, AUD/USD is trading at 0.6603, up o.41%.

Australian retail sales expected to downturn

The markets are braced for a soft retail sales report on Tuesday, with December's consensus estimate standing at -1.0%. The November report sparkled with a 2% gain, the strongest level since November 2021. The strong gain was driven by Black Friday sales and other discounts and likely came at the expense of the December reading with consumers doing their Christmas shopping early. There could be a surprise to the upside in the retail sales report if consumers took advantage of Boxing Day sales in late December.

The Reserve Bank of Australia meets next on February 6 and has repeatedly said that upcoming rate decisions will be data-dependent. This makes Wednesday's quarterly inflation report a critical release that will have a significant impact on the central bank's rate path.

In the US, inflation continues to ease while economic growth remains solid, which is the recipe that the Fed hopes will continue. The US economy expanded by 3.3% in the fourth quarter, blowing past the consensus estimate of 2.0%. On Friday, the Fed's preferred inflation gauge, the PCE Price Index, rose 0.2% m/m in December, compared to 0.1% in November. On an annual basis, the index remained steady at 2.6%. The Core PCE Index eased to 2.9%, down from 3.2% in November.

The Fed is in no rush to raise rates, and market fever over a March cut have fallen dramatically. The markets have slashed the odds of a quarter-point cut in March to 48%, down sharply from 72% a month ago, according to CME's FedWatch tool.

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AUD/USD Technical

• AUD/USD is testing resistance at 0.6583. There is weak resistance at 0.6613
• There is support at 0.6544 and 0.6514