Aussie Reaction to the Retail Sales Report

Australian retail sales fell 1.0 percent in July, a report on Wednesday showed. The average estimate was for a 0.5 percent increase and the market reacted negatively to the unexpected drop.

Another report showed a more than expected decline in home loans. Both reports caused the market to reduce its expectation for higher interest rates by the RBA. The chart below depicts the reaction from the Australian dollar to the news in early Asian markets.

Measuring a currency's strength

Earlier today, there was relatively weak data from Australia. Westpac consumer confidence dropped to -6.7%, a 16-year low, and an index of home loans dropped as much as 7.9 percent in May which is the most in eight years.

Australian dollar depreciate against major currencies after the reports but the trend started to reverse in about 4 hours. Although the US dollar was generally weak today but I don't see it as the only reason for a 1% appreciation of Aussie against greenback. I think it shows the strength of the currency.

However it is also important to remind that the employment report is scheduled to release tonight which is expected to reflect at least the inflationary pressures and the need for high levels of interest rate for a longer term.