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The Australian dollar is the weakest-performing major currency today after data showed a surprise drop in retail sales.
Figures from the Australian Bureau of Statistics showed retail sales contracted 0.1 per cent month-on-month in February, from 0.4 per cent growth the previous month. This was below economists’ expectations for a 0.3 per cent gain.
The data led to a sudden drop in the Aussie dollar, which was down 0.2 per cent at $0.7614.
Other data, showing a larger-than-expected month-on-month rise in national building approvals during February, and a private survey showing inflation expectations during March roughly in line with the previous month did little to cushion the impact on the currency.
Kate Hickie at Capital Economics said the contraction in retail sales is likely to have stemmed from “the continued drag from weak employment and wage growth, but it was probably mainly due to the unusually hot weather in February hitting sales of the autumn ranges of coats and boots. With March having been very wet, clothing sales will probably bounce back.”
But she cautioned that a big rebound in total sales seemed unlikely “as consumers’ confidence fell at the start of the month and Cyclone Debbie probably reduced spending in Queensland and northern NSW at the end of March.”
Tom Kennedy, economist at JPMorgan, noted that annual retail sales growth had fallen to 2.7 per cent year-on-year, the slowest pace in almost four years, with the composition of spending (among non-discretionary and discretionary retailers) weaker than they had anticipated.
The ongoing deceleration in annual retail sales coupled with the softer underlying details are obviously problematic for the RBA, and call into question whether or not the Australian economy can grow at a rate sufficient to get core inflation back to target.
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