AUD/CAD: Loonie to Gain from Drop in Australian Retail Sales and US Corporate Earnings

The skirmish between the commodity dollars today is set to direct the Canadian dollar above its Australian counterpart after the Land Down Under posted an unexpected decline in retail sales performance. Risk appetite is still trying to reignite as US corporate earnings season starts to kick in.

After rounds of profit taking from a sharp rally at the start of the new year subsided, investors now await corporate earnings season to kick off in full force. Asian shares were mostly higher in the trades early today, while European equities opened higher. Late yesterday, Alcoa, the largest aluminum producer in the US and a bellwether stock for the state of the US economy, kicked off earnings season with a positive outlook for 2013, as reported by CNBC and Reuters. These price movements in the stock markets pave the way for an appreciation in the risk confidence of market participants heading into the New York session.

As for economic data from the Maple Leaf, construction is forecast to have started on 198,000 residential units in December. The government tightened mortgage rules in June to slow the increase of consumer debt after the Bank of Canada cited the chance of a housing downturn as a major risk to the economy. Should the median estimate prove accurate, this would trump the 196,000 housing starts recorded in November and show some improvement albeit the downcast calculation by the BOC.

From a report by Joseph Ciolli of Bloomberg, “I think most of the story is flows and repositioning,” said Greg Moore, a currency strategist at Toronto-Dominion Bank by phone from Toronto. “It’s been very quiet, there’s been very little data out, pretty few fundamental changes.”

Meanwhile, from the Land Down Under, Australian retail sales unexpectedly declined for the first time in four months in November as consumers spent less on household goods and clothing in an economy with a weaker employment outlook. Sales dropped 0.1 percent to A$21.5 billion from a month earlier, when they were unchanged, according to the Australian Bureau of Statistics.

“This is a worry because it suggests that the Reserve Bank’s rate cuts aren’t yet getting traction with households,” said Joshua Williamson, Citigroup Inc.’s senior economist in Sydney. “It suggests the central bank has some further work to do despite the fact that the global backdrop has improved.”

A sell bias is recommended for the AUDCAD, though be wary of probable technical price corrections.

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