Bell FX Currency Outlook: Australian Dollar breaks support as weak Retail Sales weighs on the currency.

Australia: The Australian dollar has tumbled to its lowest level in almost three months overnight as international markets reacted to weaker than expected domestic Retail Sales figures yesterday.

Retail trade fell to - 0.2% in December; well below the market expectation of a 0.3% rise. The local unit was sold off during our local session which was extended during the European session.

The currency recovered some ground to open back above 1.0300 against the Greenback this morning. Today will see domestic employment figures due at 11:30am with data expected to be relatively soft.

The unemployment rate is expected to have ticked higher to 5.5% from 5.4%. Given the weaker Retail figures and comments from the RBA on Tuesday that there is scope for further monetary easing, markets are now pricing in a 55% chance of a rate cut in March.

A weak employment figure today would further add to expectations of a move as soon as next month. The EUR was also a currency in focus overnight ahead of tonight's highly anticipated ECB meeting.

If the ECB takes the attitude seen by German Chancellor Angela Merkel overnight, where EUR appreciation "isn't a bad thing" and ECB president Draghi remains relatively upbeat, then further AUDEUR losses could also weigh further on the AUDUSD.

Majors: Equity markets were generally weaker overnight, cautiously ahead of the ECB meeting tonight and focus on Spanish and Italian politics saw European equities lower. A lack of data or market events also saw US equities drift lower.

The German DAX fell 1.1% to 7,581 while the FTSE gained 0.2% to 6,295. The S&P 500 and DJIA both fell 0.2% to 1,509 and 13,958.

The ECB is widely forecast to keep rates on hold at 0.75%, but policy makers are expected to examine whether the strength of the euro is undermining a recovery in troubled economies.

If ECB president Draghi remains notably cautious, the EUR should weaken off the back of it. Metals and commodity prices were mixed but generally lower overnight.

Spot gold gained 0.3% in mainly directionless trade to USD 1,677.8 an ounce and modest gains were seen in oil with WTI futures
ending unchanged at USD 96.62 a barrel and Brent closed 0.2% higher at USD 116.76 a barrel.

Tonight we will also see the Bank of England meet with a no change in policy expected at both Eurozone meetings. US weekly
jobless claims shall also be released.

Economic Calendar
07 FEB AU Jan Unemployment Rate
EC ECB Rate decision
UK BOE Policy meeting
US Q4 Non-farm productivity www.bellpotter.com.au