Aussie dollar likely to continue its ascent

In an era of weak domestic demand in most economies, currency trends are becoming more important as central banks try to find extra (or any) sources of growth. The flat US retail sales figure for April at both the headline and core level brings into question the market view that the March quarter soft-patch, where US economic activity barely expanded, was due to the weather. With the US bond yields having backed up +0.4% over the past month, continued soft US data is likely to frustrate the US Fed in their endeavour to end their successful zero interest rate policy. This is likely to see the US dollar weaken more and high-beta currencies including the Australian dollar will continue their recent ascent. This is the last thing the RBA needs considering how weak the domestic economy already is, but the support from the fiscal side in Tuesday’s Budget may enable them to remain on hold for a while longer, but in the end it is hard to see how the domestic economy is likely to improve from here.