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03/07/24
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AUD Ignores Jumping Australian Retail Sales
On Wednesday, the Australian dollar drifted and AUD/USD traded at about 0.6674, up 0.11% for the day in the European session.
Australian consumers have been reducing discretionary spending and counting their pennies. Although consumers are feeling the double burden of stubborn inflation and high borrowing costs, retail sales were surprising today with a gain in May of 0.6% m/m. This came after April’s slight gain of 0.1% and was much higher than the market consensus of 0.2%.
Although this was the sharpest gain since Jan. it doesn’t mean that Australian consumers have now moved to a mindset of spendthrift. The rise in retail sales was rather due to many retailers involving sales events and large discounts.
Although the monthly release for May was strong there is an underlying weakness in consumer spending. Retail sales only rose 1.7% y/y, versus more than 4% early last year. This means that the retail market is still weak despite the upbeat report.
The Reserve Bank of Australia has said that rate hikes are still possible, as persistently high inflation has increased fears that monetary policy might have to be tightened. The RBA discussed hiking rates at each of the prior two meetings and the strong retail sales today may strengthen the case for a rate hike.
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