AUD/USD shrugs as Australian retail sales jumpThe Australian dollar is drifting on Wednesday. AUD/USD is trading at 0.6674 at the time of writing, up 0.11%on the day.
Australian consumers have been counting their pennies and reducing discretionary spending. Consumers are feeling the double squeeze of high borrowing costs and stubborn inflation, but retail sales pulled a surprise today with a gain of 0.6% m/m in May. This follows a meager gain of 0.1% in April and crushed the market estimate of 0.2%.
This marked the sharpest gain since January, but does not mean that Australian consumers have suddenly switched to a spendthrift mindset. Rather, the jump in retail sales was the result of many retailers involving large discounts and sales events. The monthly May release was strong but there is an underlying weakness in consumer spending, as retail sales climbed just 1.7% y/y in May, compared to over 4% in early 2023. This means that the retail market remains weak despite today’s upbeat report.
The Reserve Bank of Australia has stressed that rate hikes are on the table, as stubbornly high inflation has raised concerns that monetary policy may have to be tightened. The RBA discussed the possibility of a rate hike at each of the past two meetings and today’s strong retail sales could strengthen the case for a hike, although policy makers won’t make a rate decision based on one release.
The RBA meets next on August 6 and the second-quarter CPI report, which will be released a week before will play a key role in the decision. The markets have priced in a 32% chance of a quarter-point at the August meeting, according to the ASX rate tracker. This would bring the cash rate to 4.6% and would mark the first rate hike since last November.
There is resistance at 0.6699 and 0.6729
0.6660 is a weak support level. The next support level is 0.6630
