Australian Bureau of Statistics reported that retail sales in Australia rose by a seasonally adjusted 0.5% in June to A$36.204 billion, beating expectations for a 0.2% increase after a 0.6% increase in May. On an annual basis, sales were up 2.2%. This higher-than-expected growth reflects the potential for increased consumer spending, which could positively impact economic activity and future monetary policy expectations. However, inflation data was the main focus, with Australian core inflation in the second quarter falling by 0.8% on a quarterly basis, below expectations of 1.0%. This decline in inflation has reduced the chances of an interest rate hike by the Reserve Bank of Australia at its upcoming meeting on August 5-6. As a result, the AUD/USD pair retreated below 0.6500.
As for retail sales for the month, the Australian Bureau of Statistics pointed to the role of mid-year sales in achieving the results, with expectations that this data will be factored into the seasonal adjustment. Despite the positive monthly results, the quarterly and annual performances were weak, indicating that consumers are reluctant to increase spending significantly.
Overall, the picture remains mixed, with the rise in monthly retail sales indicating some stability in consumer spending, but the decline in inflation is tempering expectations of a rate hike, which is affecting future market sentiment.
On a yearly basis, private sector credit grew by 5.6%. Meanwhile, the latest survey from the National Bureau of Statistics showed that China’s manufacturing sector continued to contract in July, and at a slightly faster rate, with the manufacturing PMI coming in at 49.4, in line with expectations and slightly down from 49.5 in June. The survey also showed that the non-manufacturing PMI came in at 50.2, in line with expectations and down from 50.5 in the previous month, but still indicating expansion.
Impact of Inflation Report and Retail Sales on Australian Dollar
The Australian dollar fell sharply against major currencies during the Asian session on Wednesday, following the release of the country’s inflation report, which reinforced expectations that the Reserve Bank of Australia will keep interest rates unchanged at its monetary policy meeting next week. Data from the Australian Bureau of Statistics showed that the monthly consumer price index rose 3.8% year-on-year through June, compared to 4% in May.
On a quarterly basis, consumer prices in Australia increased 1.0% in the second quarter of 2024, in line with expectations. Meanwhile, inflation rose 3.8% year-on-year, in line with expectations and up from 3.6% in the previous three months.
In other news, Reserve Bank of Australia data showed private sector credit rose 0.6% in June, beating expectations of 0.4%. In Asian trading, the Australian dollar fell to a three-and-a-half-month low against the yen at 98.59, and a five-month low against the euro at 1.6700. The Australian dollar is expected to find support at 97.00 against the yen and 1.68 against the euro if the downtrend continues.
The Australian dollar also fell to a three-month low against the US dollar at 0.6479, a four-week low against the New Zealand dollar at 1.0969, and a three-month low against the Canadian dollar at 0.8973. It is likely to test support at 0.63 against the US dollar, 1.06 against the New Zealand dollar, and 0.88 against the Canadian dollar.
On the other hand, markets are cautiously awaiting the US Federal Reserve’s monetary policy announcement later today, with expectations that the Fed will keep interest rates unchanged, as traders await any indications of a possible rate cut in September.
Economic indicators watched by the Reserve Bank of Australia alongside retail sales
The Reserve Bank of Australia monitors a range of economic indicators to assess the health of the economy and inform monetary policy decisions. In addition to retail sales data, some of the key economic indicators watched closely by the Reserve Bank of Australia include:
1. Inflation (CPI): The Consumer Price Index (CPI) measures the average change in prices paid by consumers for a basket of goods and services. The Reserve Bank of Australia targets an inflation rate of 2-3% over the medium term and uses CPI data to measure price stability in the economy.
2. GDP growth: GDP measures the total value of goods and services produced in the economy. The Reserve Bank of Australia looks at GDP growth to assess the overall performance of the economy and identify trends in economic activity.
3. Employment data: The Reserve Bank of Australia closely monitors employment indicators such as the unemployment rate, employment growth and the labour force participation rate. Labour market conditions are crucial to assessing the level of economic activity and consumer spending.
4. Interest rates: The Reserve Bank of Australia sets the official cash rate, which affects borrowing costs across the economy. Interest rate movements can impact consumer spending, investment and inflation levels.
5. Housing market data: The RBA pays attention to indicators relating to the housing market, such as house prices, building approvals and housing finance data. Developments in the housing market can have implications for consumer wealth, borrowing behavior and overall economic stability.
By analyzing these key economic indicators alongside retail sales data, the RBA can gain a comprehensive view of the performance of the economy and make informed monetary policy decisions to achieve its objectives of price stability, full employment and sustainable economic growth.
