(09 MAY 2017)DAILY MARKET BRIEF 1:Australian dollar falls after weak retail sales

After falling 1.60% last week, the Australian dollar printed a fresh multi-month low amid disappointing retail sales.

AUD/USD reached $0.7353 on Tuesday morning as retail sales contracted -0.1%m/m in March, missing estimates of +0.3% but this was better than a downwardly revised figure of -0.2% in the previous month.

This was the icing on the cake for investors, especially after the massive debasement of iron ore prices that continues to add pressure on an already wounded mining sector. On the Dalian Commodity Exchange, September future contract slid 1.90%, falling to CNY 461 a metric ton, compared to CNY 685 in February.

Since the beginning of the year, investors have been quite enthusiastic regarding Australia’s economic outlook, especially against the backdrop of stabilisation in China. However, clouds started to gather on the horizon as investors have started to express worries regarding the huge level of indebtedness of the Chinese private sector.

All the conditions the been met for weaker growth in the first quarter. We therefore anticipate that the Aussie faces a tougher period ahead, especially as investors are still heavily positioned for further appreciation of the Aussie. The unwinding of the long speculative positions - net long non-commercial positions currently stand at almost 40% of total open interest as reported by the CFTC - can only accelerate AUD debasement.

By Arnaud Masset