Australian Retail sales missed their mark, dropping unexpectedly in the month of December sending AUD/USD to fresh monthly lows as investors dumped the currency in Asian and early European trade. Retail Sales declined by -0.2% versus forecasts of 0.5% gain shocking markets as consumption hit a two and half year low.

Spending on other retailing, a category that includes pharmaceutical goods and book retailing, dropped 2.8%, and consumers spent 1.1% less at cafes and restaurants. Spending did increase by 2.1% on clothing and footwear, and 0.8% at department stores.

This was the third month in a row of contracting Retail Sales – the worst such stretch of declines in 13 years – indicating that the Australian economy is clearly slowing as the effects of the mining boom begin to wear off. Today’s weak data also helps to explain yesterday’s rather dovish RBA statement which minimized inflationary pressures in the system and suggested that further rate cuts may be in the offing.

The news hit the Aussie hard, as the single currency broke through the key 1.0350 support level and remained near the day’s lows at the start of European dealing. With market consensus now becoming more and more convinced that Australian cash rates will continue to be lower, the Aussie will remain under pressure. The pair could break below the 1.0300 level as the day proceeds and may not find support until the 1.0250 level as investors adjust their expectations regarding the Australian economy.

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