Preview: Australian retail sales report holds key to RBA's rate decision

[MongiIG]

This week, all eyes are on the April Retail Sales report, which will play a crucial role in shaping market expectations for the Reserve Bank of Australia's (RBA) interest rate decision in June.

 

Source: Bloomberg

 

Forex Commodities AUD/USD United States dollar Australian dollar Interest rate

 Tony Sycamore | Market Analyst, Australia | Publication date: Monday 22 May 2023

While Australian wages and employment data came in weaker than expected last week, moving forward the focus will be on the April Retail Sales report to support current market pricing the RBA will keep rates on hold at 3.85% in June.

The release of the Wage Price Index last week showed that wages increased by 0.8% in the quarter, below economists' forecasts for a rise of 0.9%. While the annual rate of 3.7% was the highest in a decade, it was well below the annual inflation rate of 7%.

Real wages are falling

The softer wages data was supported by the April Labour Market report, which showed that employment fell by 4k sending the unemployment rate to 3.7% from 3.5%. The onus to keep the RBA on the sidelines in June now falls on the April Sales Report due for release this Friday, April 26th and the monthly CPI indicator on Wednesday, May 31st.

What is expected?

Retail sales increased by 0.4% in March, above market consensus, looking for a minor fall. The impact of higher interest rates and cost of living pressures has the market looking for a slight rise of 0.3% in April. The range of estimates is from -0.2% to +0.6%.

A number of zero or less would be welcomed by the interest rate market expecting the RBA to remain on hold in June and a minor negative for the AUD/USD.

A number of 0.6% or higher would likely see the market increase the chances of an RBA rate hike in June and be a slight positive for the AUD/USD.

AUD/USD technical analysis

The AUD/USD closed flat last week at .6650 (+0.07%) as softer commodities, wages and employment data offset improved risk sentiment around debt ceiling negotiations.

The AUD/USD starts the new week below the 200-day moving average at .6713, towards the bottom of its long-standing .6800c/.6550 range.

A sustained break below .6550 would likely see a move lower towards .6350 unfold in the coming months. Until then, the AUD/USD remains a range traders market.

AUD/USD daily chart

 

 

Source: TradingView