By Wayne Cole
SYDNEY, May 8 (Reuters) - The Australian dollar took a knock on Tuesday when unexpectedly weak readings on retail sales cast doubt on the strength of the domestic economy, suggesting a government budget due later in the day would do well to offer some fiscal stimulus.
The Aussie AUD=D4 eased around a fifth of a U.S. cent to $0.7503 in the wake of the data, though support was lined up at $0.7490 and the recent 11-month trough of $0.7472.
Also providing a floor was a surprisingly upbeat report on Chinese trade with exports and imports both handily beating forecasts. domestic news was not so hot with retail sales flat in March and up just 0.2 percent for the first quarter, well short of market forecasts and a blow to hopes for an economic pick up. reined in their expenditure in Q1, with notable weakness in discretionary spending," said Su-Lin Ong, head of strategy at RBC Capital Markets.
"Amid some moderation in employment generation and unfolding softening in the housing market in early 2018, this softness in consumption likely has further to play out."
Later Tuesday, the centre-right Liberal National government of Prime Minister Malcolm Turnbull hands down an annual budget that is likely to be larded with pre-election sweeteners.
High on the giveaway list will be tax relief for low and middle income families, tax breaks for retirees and promises of more spending on infrastructure. reports suggest the budget will still get to surplus in 2019/20, a year earlier than previously projected, and a marked contrast to the United States were the deficit is being blown out by tax cuts and increased spending.
"The bond market would be very favourably disposed to the Budget achieving surplus earlier," said Westpac head of rates strategy, Damien McColough.
"It would provide credence to those looking for further Australian bond market outperformance relative to U.S. Treasuries," he added. "The contrast in the issuance profiles is already stark and would only become more so."
Yields on U.S. 10-year paper US10YT=RR rose above those in Australia AU10YT=RR in February and the U.S. government currently has to pay 21 basis points more to borrow.
Australian government bond futures edged up on Tuesday, with the three-year bond contract YTTc1 gaining 1 tick to 97.810. The 10-year contract YTCc1 rose 1.5 ticks to 97.2450.
The New Zealand dollar NZD=D4 was pinned at $0.7018 having taken a dip of its own when a survey of inflation expectations showed a pullback.
The Reserve Bank of New Zealand reported inflation was expected to average 2.01 percent in two year's time, down from 2.11 percent in a February poll. would not be welcomed by policy makers given lowered expectations can drive down price plans and wage claims, in turn feeding through to lower actual inflation. (Editing by Shri Navaratnam)