By DailyFX – Economists expect Australian retail sales growth cooled slightly last month, though the 0.5 percent consensus sets up an eleventh consecutive monthly increase…. …

Consumer spending has been on a consistently positive
path and its strength has had a very clear effect on the overall
economy. In the first quarter of the year, growth measured a year-high
1.0 percent 0.7 percentage points of which was directly linked to
domestic consumption. Given the available peripheral data for the same
period, expectations of yet another increase in sales is well supported.
The single most important contributor to liberal spending labor trends
was still a prominent dynamic in April. According to the national
statistics bureaus numbers, employers added an additional 49,600
employees to the national payrolls over the period. For the past twelve
months, this totals an impressive 300,000-plus new jobs in Australia for
a new 18 year record. Further boosting Australians confidence in their
current and future financial positions, the jobless rate slipped to a
new 33 year low 4.4 percent over the same period. Outside of
employments contribution to spending, there is likely to be a strong
level of support from recent policy announcements. The government has
recently announced a $2.1 billion tax relief package that will be spread
out over the next four years. And to ensure that it the great majority
of it will be funneled into the discretionary spending that contributes
to consumption numbers, the RBAs quarterly policy statement has given
reason to believe the central bank has capped further rate hikes. In the
lengthy report, central bankers said inflation is benign and would
allow plenty of time for Governor Glenn Stevens to respond should the
tides change. Given all the strong support data surrounding the
forthcoming release, the markets unofficial outlook may be considerable
higher than economists are letting on. Consequently, a disappointment
could produce outsized declines.

Bonds – 10-Year Australian Government Bonds

Yields on the 10-year Australian government bond have been tripped up
little on their long-term advance. From the swing low in February, rates
have rallied over 400 basis points. More recently, the uptrend was taken
through the 5.810 to 6.043 leg which was charged through historically
strong employment numbers that have rallied expectations for spending
and with in turn rate hikes. With Aprils retail sales release, yet
another positive month for spending would certainly add to expectations
for a return to hawkish rhetoric for the RBA. This indicator is among
the very last top-tier reports slated for release before the GDP and the
RBA rate decision cross the wires next week. As it stands, economists
arent banking on a rate hike anytime soon, though the market is
considering it.

FX – AUD/USD

With support lying just below at 0.8170, AUDUSD has hovered near the
0.8200 level for the past few days, especially as economic data from
Australia has been thin. The release of Retail Sales from the country
could turn the tide for the pair, however, as the figure is anticipated
to rise for the eleventh consecutive month. With continued improvements
in the labor market fueling consumption, traders may consider the
possibility that the Reserve Bank of Australia will become concerned
that rapid domestic demand growth will drive up inflationary pressures,
and subsequently lead to a rate hike this year. However, CPI has thus
far remained cool, indicating that expansion will go on unfettered as
the central bank will leave rates relatively accommodative. As a result,
a strong Retail Sales release may only have a brief positive impact on
AUDUSD, leading it up towards resistance at 0.8250. On the other hand, a
disappointing release — particularly one that shows outright contraction
could bring the pair to drop like a stone towards 0.8109.

Equities – S&P/ASX 200 Index

The Australian S&P/ASX 200 benchmark index gained 1.1 percent to close
at 6,317.60, ending three days of declines as a rally in metals, such as
copper, led miners higher. BHP Billiton, the world's biggest mining
company, rose 1.8 percent to A$31.70 while Rio Tinto, the third-largest,
ended the day up 2.4 percent to a record A$96.36. Meanwhile, Coles, the
nation's second-biggest retailer, slid 4.2 percent to A$16.65 after US
buyout firm Kohlberg Kravis Roberts & Co. quit a buyout group
considering making an offer for Coles, a day after CVC Asia Pacific Ltd.
decided to walk away. Retailers like Coles could find a bid tone,
however, as Australian Retail Sales are anticipated to improve once
again in the month of August. However, this data would also signal that
consumption has yet to cool and may lead the Reserve Bank of Australia
to consider raising rates, which would be bearish for Australian
equities as a whole. Nevertheless, with inflation remaining tame and a
rock solid labor market fueling consumption, it is more likely that an
encouraging retail sales report will lead the S&P/ASX 200 up towards
6,350.00.

DailyFX Research Team
Forex Capital Markets LLC
32 Old Slip, 10th Floor
New York, NY 10004
Tel (212) 897-7660
Fax (212) 897-7669
E-mail: research@dailyfx.com

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