AUD/USD was bearish throughout last year until October, as the USD was rallying on strong FED rate hikes at 75 basis points (bps) for several meetings, while the Reserve Bank of Australia was keeping a steady pace at 25 bps. But, the FED slowed down to 25 bps as well and this pair reversed higher.

Since then, this pair has been on a steady bullish trend, gaining around 9 cents until early this month, when the US ISM services and employment numbers showed a strong jump in January. But, markets weren’t certain about a rebound in the US economy yet, so they have been waiting for more proof, and today’s retail sales report gave them further proof. AUD/USD reversed lower and sellers are testing the 50 SMA (yellow) on the daily chart now. If this moving average is broken, then the bullish trend is over for this pair. Below is the retail sales report:

January 2023 US Retail Sales Report

• January retail sales 3.0% vs +1.8% expected
• Strongest reading since March 2021
• December sales were -1.1%
• Core sales ex autos +2.3% vs +0.8% expected
• Prior sales ex autos -1.1%
• Control group sales +1.7% vs +0.8% expected
• Prior control group -0.7%
• Ex autos and gas +2.6% vs -0.7% prior
• Gasoline stations +5.7% m/m
• Electronics and appliance stores +3.5% vs -1.1% m/m prior
• Furniture stores +4.4% vs -2.5% m/m prior
• Restaurants +7.2% vs +0.0% m/m prior

The December reading was surprisingly bad but great weather in January had many leading towards a beat, with Bank of America leading the way in forecasting +2.6% in the control group. The US dollar is higher on the headlines but perhaps not as high as some would have expected given the sizzling number. Some market watchers (including us) sniffed out that the report would be strong so the real expectation might have been higher than the ‘consensus’.

There are also some one-time and seasonal adjustments in this report that added to the upside, including a large increase to the cost-of-living allowance for Social Security recipients. Still, the Fed is going to look at this and price in some measure of pipeline inflation. I suspect that short-term USD bids are being trimmed on the ‘sell the fact’ trade, but they could circle back later.

AUD/USD Live Chart