SYDNEY (Dow Jones)--Sweeping risk aversion sent the Australian dollar sharply lower in Asian trade Wednesday as investors fret over the global economy and after weak domestic retail sales numbers fuelled bets for a rate cut in coming months.
"Negative sentiment has continued to dominate asset markets," said Sue Trinh, senior strategist at RBC Capital Markets.
At 0602 GMT, the Australian dollar was at US$1.0747, down from US$1.0925 late Tuesday and off a 30-year high of US$1.1080 last week. Against the Japanese yen, the Australian dollar was at Y82.885, down from Y84.57. Front-end bond futures rallied hard as dealers up their bets on monetary policy easing, pricing in over 80 basis points of cuts by the Reserve Bank of Australia by year end.
Australian retail sales fell 0.1% to a seasonally adjusted A$20.54 billion in June from A$20.57 billion in May, the Australian Bureau of Statistics said Wednesday. Economists expected a rise of 0.3% on the month. Sales rose 0.3% in the second quarter from the first in chain volume terms, meeting expectations.
"Today's data delivered a second consecutive 'miss' on retail sales, with flat sales over four months signalling a dire retail environment, particularly for department stores and in the 'non-resource' states," said Scott Haslem, chief economist at UBS.
The focus will return offshore in the near term as dealers await a verdict from Standard & Poor's on the U.S. AAA rating, which it has threatened to downgrade. A decision by Moody's and Fitch to leave the rating intact did little to boost confidence.
"There remains a risk of a downgrade to the U.S. government's credit rating by S&P," said Commonwealth Bank of Australia FX strategist Joe Capurso.
European PMI's will also be watched during offshore trade. "Stocks are precariously placed and there will be focus on the year-to-date lows," said RBC's Trinh.
-By Enda Curran, Dow Jones Newswires; 61-2-8272-4687; enda.curran@dowjones.com
