We wrote a couple of weeks ago about the fact that May has generally been a good month for the dollar in recent years (see Dollar selling for now), averaging 3.9% on the dollar index over the past four years. Some of that was caused by the strong decline in the single currency during the euro crisis back in May 2010, but even leaving aside that aberration, May has still proven to be the best month for the dollar in recent years. What is noticeable is that data has continued to fall to the strong side of expectations, so if this continues then this suggests the dollar could have some scope for catch-up. For today’s retail sales data, the market is looking for a 0.4% gain, with the less volatile core measure (excluding autos and gas) seen up 0.5%.
Ahead of that, overnight data from China has fallen slightly short of expectations, Retail sales rising 11.9% YoY and industrial production rising 8.7% (expected 8.9%). This has seen the Aussie and yen weaker vs. the Greenback, whilst the euro has clawed back some of the losses seen over the previous 24 hours, but all within fairly tight ranges. The softer Aussie tone was also helped by weaker home loans data seen earlier (falling 0.9%) and suggest that there may be some cooling in the housing sector. Note that the Australian budget is released today, which is likely to see spending cuts and tax measures aimed at putting the budget on a more even keel. If the budget is tighter than expected, the Aussie could be under some pressure, but expectations of rate changes this year (up or down) remain slim, so it’s unlikely that we will see strong downward pressure even with a tight budget.