Stevens Jawbones AUD, Or Did He?

Comments from RBA Governor Stevens started a cascade of Australian dollar selling but the headlines overstated his comments. The US dollar was the best performer as a broad taper trade took hold following retail sales data. The Asia-Pacific week winds down with limited data.

Traders dumped the Australian dollar as an interview with the Australian Financial Review hit the wires. The article carried a headline said 'We need a dollar close to US85¢' but the transcript of the interview was nowhere near as strong.

“I thought 85 would be closer to the mark than 95 at the time we started to make some comments some months ago, but, really, I don't think we can be that precise,” Stevens said in the only remarks on AUD.

AUD selling continued as PM Abbott piled on, telling Parliament about an $8 billion grant to the RBA that enables Stevens to 'intervene prudently'. AUD/USD slumped as low as 0.8917 from 0.9061. The Aussie had been higher on the day after the upbeat employment report. What was overlooked was a comment from Stevens saying a weaker AUD is preferable to lower interest rates, which shows reluctance to lower rates.

For the US, the major news was November retail sales and the report was upbeat. Core sales rose 0.5% compared to 0.3% and the prior report was revised 0.3 pp higher. With the House voting to pass a budget deal and the Senate expected to do the same next week, the Fed is looking at plenty of reasons to act sooner rather than later.

There was a clear move toward a taper trade Thursday with gold, stocks and bonds declining with the US dollar made broad gains. In particular, USD/JPY broke the December high and is threatening the 2013 high of 103.74. That will be a key marker in the day ahead.

In other market moves, the euro fell for the first time in 8 days but it wasn't a swift fall, barely a third of a cent. Even when all the elements are alight for euro weakness, such as today, declines are hard to come by.

Looking ahead, the lone item on the Asian schedule is the final reading on Oct Japanese industrial production. The preliminary reading was +0.5% m/m. The bigger focus will be on the Nikkei, which is likely to get some boost from yen weakness.