Dollar sells off on weak retail trade data

THE Australian dollar has fallen almost half a US cent following weaker-than-expected domestic retail trade data.

THE Australian dollar has fallen almost half a US cent following weaker-than-expected domestic retail trade data.

At 12pm AEDT, the Australian dollar was trading at 103.65 US cents, down from 104.05 cents yesterday afternoon.

National Australia Bank co-head of foreign exchange strategy Ray Attrill said the currency had reached a local session high of 104.01 US cents five minutes before the release of December retail figures at 11.30am AEST.

It then dropped to 103.59 in the half-hour after the announcement, he said.

The Australian Bureau of Statistics (ABS) data showed retail trade fell 0.2 per cent in December. The market had forecast an increase of 0.3 per cent in the month.

"We had a knee-jerk sell-off just because the headline numbers were weaker than expected, both in terms of the nominal number for December and also the real numbers for Q4 (the fourth quarter)," Mr Attrill said. "On inspection, the numbers do look significantly weak."

He said the initial drop was followed by second wave of selling, as the market scaled up the probability of the Reserve Bank of Australia cutting interest rates as early as March.

"That seems to be carrying us a little bit lower here," Mr Attrill said.

A crucial indicator would be whether the Australian dollar broke through the 103.50 US cent barrier, he said.

"There are suggestions that if we were to get through that level, we might see a bit more broad-base selling," he said. "Sentiment is fairly negative towards the currency and downward does seem the path of least resistance."

Meanwhile, Australian bond futures prices were lower at noon. At 12pm AEDT today, the March 10-year bond futures contract was trading at 96.485 (implying a yield of 3.515 per cent), down from 96.530 (3.470 per cent) yesterday. The March three-year bond futures contract was at 97.140 (2.860 per cent), down from 97.150 (2.850 per cent).