Australian Retail Sales Stall on Inflation and Higher Interest Rates

It was a relatively busy morning on the Asian economic calendar. Japan inflation and Australian retail sales figures were in focus. While inflation numbers from Tokyo drew interest, Australian retail sales numbers had more impact.

Retail sales stalled in April versus a forecasted 0.3% rise. Retail sales rose by 0.4% in March.

According to the ABS,

• Food retailing declined by 0.1%, with household goods retailing falling by 1.0% in April.
• Spending on cafes, restaurants, & takeaway food services slipped by 0.2%, while clothing, footwear, & personal accessory sales increased by 1.9%.
• There were also increases in department store sales (+1.5%).
• Other retailing remained relatively unchanged.
• Compared with April 2022, retail sales were up 4.2%, according to prelim figures.

After the latest RBA 25-basis point interest rate hike in May, the weaker-than-expected retail sales would ease pressure on the RBA. However, inflationary pressures would need to soften further to signal an end to the RBA’s monetary policy tightening cycle.

AUD/USD Reaction to Australian Retail Sales

Ahead of the retail sales numbers, the AUD/USD fell to an early low of $0.64904 before rising to a high of $0.65100.

However, in response to the retail sales report, the AUD/USD fell from $0.65034 to a post-stat low of $0.64977.

This morning, the AUD/USD was down 0.06% to $0.65004.

Next Up

Looking ahead to the US session, it is a busy day on the US economic calendar. Core durable goods orders, Core PCE Price Index, personal spending/income, and Michigan consumer sentiment numbers will be in focus.

We expect the Core PCE Price Index numbers to have the most impact. Sticky inflation would fuel bets of a 25-basis point Fed interest rate hike in June and ease expectations of an H2 interest rate cut.

Economists forecast the Core PCE Price Index to increase by 4.6% year-over-year in April versus 4.6% in March.

According to the CME FedWatch Tool, the probability of a 25-basis point Fed interest rate hike in June jumped from 36.4% to 52.2% on Thursday. Better-than-expected labor market and GDP numbers supported the shift in sentiment ahead of today’s inflation numbers.

While the US inflation will draw interest, a lack of progress toward raising the debt ceiling would limit the influence on sentiment toward the June interest rate decision. A US default would likely force the Fed to hit the brakes on tackling inflation.