Australia Retail Sales and the Next RBA Rate Hike


There is an important difference between three key groups that are important for traders when it comes to the future of the AUDUSD.

The market appears to be priced in a tax hike as early as next year. Analysts insist it will be around mid-2023. And the RBA says it will happen in 2024. So, who’s right?

Well, we certainly can’t know what will happen in the future, but we can look at some data that might give us some insight.

Retail sales could be an important indicator here. Certainly, the RBA does not make policy decisions based on retail. However, the main thing here is inflation, and when it actually gets bad enough that the RBA will have to intervene.

Follow the right leader

Retail sales data are probably a more accurate measure of the economic situation than consumer sentiment surveys.

There is a difference between what people say they want to buy (or how much they want to save) and what they actually buy. After all, a basic economy dictates that in order for prices to rise, you need increased demand.

Inflation would imply buying from more consumers, so data on retail sales can give us some insight into where inflation might be going. If consumers increase their spending, then we know that more money is circulating. If this happens when there are fewer products available to buy, for example, because there are supply chain problems, then the logical result is higher inflation.

It is not as constant as it seems

Australian core inflation has come well above expectations. This could be one of the reasons that the market expects higher rates sooner. In turn, this could help strengthen the Australian dollar, already supported by higher commodity prices.

But analysts warn that the market may be a bit ahead, and point out that the RBA is more interested in the threat of wage inflation. After all, it’s up to the RBA to decide what rates to make, and if they want to keep them lower, they’ll stay low.

Of course, the RBA must respond to the reality on the ground. And the underlying question is how long will the mismatch between supply and demand last. Well, tomorrow we can get the latest data on half of that equation.

What to pay attention to

Analysts expect Australia’s October Retail Sales to accelerate, growing by 2.5% from 1.9% in August. Now, of course, this could be distorted by the covetous situation in Australia at the time. In fact, then many places either began to relax measures or provided schedules to do so. That may have given consumers an extra boost.

However, a further shift higher in the latest data would suggest a growing trend among consumers. And that’s as soon as the locks are canceled, people are ready to go out and spend. Especially before the holidays and when Australia moves into its summer season. This could translate into further additional pressure on inflation, and it could simply move the needle a little further to raise the rate earlier.

On the other hand, if we were to receive disappointment about the results, then that would support analysts ’perspective by suggesting that rate will be later than sooner. The likely result would be a weaker Australian dollar.

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