Dollar Takes Back Some Ground Lost On U.S. Retail Sales Miss

The dollar took back some ground lost after a surprisingly weak U.S. retail sales report, while the Australian dollar edged lower on Wednesday after downbeat Chinese economic data.

China’s annual economic growth slowed to a six-year low of 7.0 percent in the first quarter, with other key indicators slumping to new multi-year lows.

Retail sales, industrial output and fixed asset investment growth rates all missed analyst expectations, with fixed-asset investment – a key economic demand driver in China – at its lowest level since 2000, while industrial output posted its weakest rise since the global financial crisis in 2008.

“Some of the details were disappointing, but overall, the China data did not change anyone’s expectations,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

Other market participants said there was relief that the headline growth figure was not worse, and that helped push up U.S. Treasury yields and gave the dollar some support.

The benchmark 10-year yield US10YT=RR edged off its session low of 1.886 percent to 1.891 percent, not far from its overnight close of 1.904 percent.

The Australian dollar AUD=D4 slipped as low as $0.7583 from a session high of $0.7629, pulling closer to this month’s six-year low of $0.7534 as investors feared for their country’s resource exports if Chinese demand were to weaken further.

Overnight, the U.S. dollar snapped six straight sessions of gains after U.S. retail sales data failed to meet the market’s lofty expectations. Sales rose 0.9 percent in March, undershooting the consensus forecast of a 1.0 percent gain, while core sales were much softer. [ID:nL2N0XB0R9]

The data dealt a fresh blow to the dollar index .DXY, which had appeared to be back on track to test a 12-year high of 100.390 set last month, climbing as high as 99.990 on Monday. It last stood at 99.041, up about 0.3 percent on the day and well off its overnight low of 98.371.

The relatively outsized market reaction to the U.S. sales data suggested dollar bulls were becoming frustrated with the recent string of economic data and paring their long-dollar bets. Unimpressive figures have provided evidence to those expecting the U.S. Federal Reserve will delay hiking interest rates until later this year, instead of in June as some investors had believed.

The next major U.S. release will be consumer price inflation data on Friday. Inflation has fallen short of the central bank’s 2 percent target, which is seen as confounding its plans to raise interest rates.

The euro sagged about 0.3 percent on the day to $1.0622 EUR=, well off the previous session’s high of $1.0708 and heading back toward Monday’s trough of $1.0520.

Concerns over the debt standoff between Greece and the European Union have helped send German government bond yields to record lows, pressuring the common currency.

The euro managed to recover a bit of ground against the yen, steadying to 127.17 EURJPY=R after marking a nearly two-year low of 126.08 on Tuesday.

Against the yen, the dollar was up 0.3 percent at 119.70 JPY=, well off Monday’s high of 120.84 but still above the overnight low of 119.07 yen.

Investors cut short yen positions earlier this week after comments from Koichi Hamada, a key economic adviser to Japan’s Prime Minister, were taken to mean the currency was too weak.

Hamada has since told Reuters in an interview that he thought the yen was fairly valued around current levels.

Source : Reuters