SYDNEY: The Australian dollar paused under six-month highs on Monday, in part on profit taking as surprisingly soft retail sales added to the case for a cut in interest rates this week even as the improving global mood seemed to lean against an easing.
The Aussie slipped 0.5 percent to $1.0719 on the day, having climbed to $1.0794 on Friday, its highest since August, when an upbeat US jobs report fuelled a risk rally.
Uncertainty over a Greek debt restructuring gave investors an excuse to book profits following a stellar run for the local dollar, which has gained 5 percent so far this year.
A surprisingly soft retail sales report at home combined with a private survey highlighting well-contained price pressures to highlight the case for an easing from the Reserve Bank of Australia (RBA) at its policy meeting on Tuesday.
"(Retail data) confirms that retail price inflation is practically non-existent, so there's nothing in these numbers stopping the RBA from cutting tomorrow. We expect an easing to 4 percent," said Michael Blythe, chief economist at the Commonwealth Bank of Australia.
Indeed, most analysts forecast the RBA to cut rates by 25 basis points to 4.0 percent in part because the strength of the Aussie is tightening financial conditions.
However, investors are having doubts given recent upbeat US data and rallies in equity markets and interbank futures put the odds of an easing at around 50-50. The June contract now implies a rate of 3.6 percent, compared to 3.2 percent just a month ago.
Selling of Asian currencies, particularly the Korean won, dragged the Aussie lower, as it is often taken as a proxy for Asia.
Still, speculators remain extremely bullish the Aussie with net long contracts climbing to a six-month peak with more than 78,000 contracts.
While immediate resistance is found at around $1.0720, a sustained break higher could open the way for a retest of the 29-year peak of $1.1081 hit in July.
Other data released on Monday showed the biggest jump in Australian job ads in almost two years.
A broadly weaker euro held near record lows against the Antipodeans. It was last around A$1.2203, a hair above an all-time trough of A$1.2160 on Friday. Against the kiwi, it traded at NZ$1.5740, having troughed to NZ$1.5645 offshore.
The kiwi eased to $0.8317, from $0.8352 in late NY on Friday, amid thin trading as New Zealand was on holiday. The New Zealand dollar, among the best performing currencies this year, has gained 7 percent since Jan.1. and touched a five-month peak of $0.8380 last week.
Support for the kiwi is around $0.8300 while the upper Bollinger band of $0.8372 capping the topside.
Australian bond futures fell sharply, with the three-year contract off 0.12 points to 96.700. The 10-year contract lost 0.105 points to 96.130.
Market's focus will zoom in on Athens as Greek coalition members are scheduled to tell the EU by noon on Monday (1000 GMT) whether they accept the painful terms of a new bailout.
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