Australian dollar falls

The Australian dollar has fallen Wednesday, buying 72.35 US cents from 72.61 US cents on Tuesday.

Yesterday, the local currency rebounded after the central bank held interest rates steady and sounded less dovish than many bears had been betting on, forcing a swift round of short covering.

The Aussie dollar popped back up to 72.55 US cents, having slipped as low as 71.94 US cents earlier following a disappointing report on retail sales.

The Reserve Bank of Australia ended its first policy meeting of the year reiterating the standard line that further progress on unemployment and inflation was expected, even if it was likely to be gradual.

The central bank did trim its forecasts for economic growth and inflation, noting that some downside risks had increased both at home and abroad.

However, the RBA stopped well short of an explicit dovish shift in its policy bias as many speculators had wagered on.

Some had thought it might choose to echo the US Federal Reserve, which last week all but abandoned plans for more hikes.

Australian government bond futures dipped in response, with the three-year bond contract off 2.5 ticks at 98.240.

The 10-year contract eased two ticks to 97.7500.

Futures markets still imply around a 50-50 chance the RBA will have to cut its 1.5 per cent cash rate by year end given the recent dismal run of domestic data.

Retail sales figures out on Tuesday showed a 0.4 per cent decline in December as shoppers cut back on household goods and clothing.

Inflation-adjusted sales grew a miserly 0.1 per cent for the fourth quarter as a whole, pointing to another subdued contribution from consumption to economic growth.

“Retail is worth about a third of total household consumption, so the early indication is that total consumer spending growth will be soft in Q4, as it was in Q3,” warned CBA senior economist Gareth Aird.

“Despite decent employment growth, a tightening labour market and a gradual lift in wages growth, spending growth has eased,” he added, pointing a finger at falling home prices as one likely culprit for consumer caution.

The poor result overshadowed trade data showing Australia boasted its second-largest surplus on record in December at $3.7 billion.

Much of the improvement was due to a steep 6 per cent drop in imports, which also spoke of softness in domestic demand, though exports grew at a strong 16 per cent compared to a year earlier.

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