With retail sales gaining more than what was expected by economists, the Australian dollar traded near a 23-year high increasing the possibility of central bank raising the cost of borrowing from an 11-year high next week.
The local dollar climbed against 15 of the 16 most-actively traded currencies at prospects that the Reserve Bank of Australia will increase interest rates from 6.5 percent pushed yields of two-year government bonds to the highest in seven years, luring overseas investors. Australia’s dollar also benefited as a cut in U.S. borrowing costs October 31 widened the yield advantage of the nation’s bonds.
“All the data underscores why the RBA will be hiking next week and why the market is pushing for another rate hike, even for December,” said Sue Trinh, a currency strategist at RBC Capital Markets in Sydney. “The interest-rate differential with the U.S. is going to be boosting the Australian dollar.”
Melbourne-based Foster’s Group Ltd., the world’s second- largest winemaker, October 31 joined companies including CSL Ltd. and Billabong International Ltd. in warning the strength of the Australian dollar will cut the value of overseas earnings brought home. Harvey Norman Holdings Ltd., Australia’s biggest electronics retailer, reported profits may rise because the price of imported goods are cheaper.
Retail sales advanced 0.8 percent, matching the revised August gain, the Bureau of Statistics said in Sydney. The median estimate in a Bloomberg News survey of 23 economists was for 0.5 percent.
“The retail sales data out of Australia sealed the deal on a rate hike next week,” said David Forrester, currency economist at Barclays Capital in Singapore. “It also increases the chances of follow-up rate hikes.”
Forrester said the Australian dollar has also benefited as investors increased carry trades, where they buy higher yielding assets with borrowed yen.