Commodity Currencies Ride Risk Rally, NZ Sales Jump

Positive sentiment snapped back after better than expected US retail sales on Tuesday. The commodity currencies surged while CHF and JPY lagged in a classic risk on pattern. New Zealand Q1 retail sales rose by the highest in 4 years.

US retail sales declined 0.2% in May compared to the -0.5% expected. Automotive sales slumped badly but analysts say they are confident this is due to Japanese supply disruptions in part because of positive signals in the used car market. Sales excluding autos and gas advanced 0.3% compared to the 0.2% expected. With gas prices 10% lower than the peak, sales are expected to accelerate and that helped boost sentiment.

The best performer was AUD followed by CAD and NZD. Oil climbed $2 and gold $10. The S&P 500 gained 1.3% but was higher by more than 2% heading into the final hour when a round of profit taking hit. That move weighed on EUR/USD, pulling it to 1.4440 from 1.4997 and other risk trades followed a similar pattern.

Asia-Pacific Preview

NZ March retail sales rose 2% in the March quarter, the biggest increase in four years. Core retail sales, (ex auto-related industries, rose 0.9%), NZDUSD has not reacted on the news as risk assets have been unable to extend the US rally into Asia.

Meanwhile in Tokyo, Japan's Finance Minister was cited by news wires that currencies should reflect economic fundamentals and that he is closely watching FX markets. Fading the gains towards 81-82 is expected to ensue even as intervention threats beckon. Renewed break below 80 is viable by early July before the next tankan survey.

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