From a fundamental point of view, a currency’s performance is dependent on its economy.
Investors demand for currencies that are backed by strong, resilient economies and avoid currencies of distressed economies.
Therefore, when an economic data is being released, investors and analysts would scour over the details in hope of gaining insights to the state of the economy.
Retail sales is an important data when it comes to forex trading. It is a fundamental gauge of an economy’s health and has far reaching repercussions.
As you can see, the retail activity results in revenue for a business. This revenue also increases liquidity. If sales are high, the business may hire new employees or open up a new store. Now that the products are being sold, the store will then need to restock. This in turn sends revenue to the manufacturers, thus spurring more economic activities.
On the other hand, should the retail sales take a turn for the worst, we can easily imagine the challenges that it would create for the businesses and their supply chains. Unemployment may rise and further complicate the situation.
Now that you understand the gravity of the impact of retail sales, you can also appreciate why retail sales data can often affect the prospects of a currency. Having said so, retail sales is but just one of the critical indicators of an economy. Read more about the other indicators over at our Forex Education segment.