Australian dollar higher, latest Australian economic data is weaker than expected but not bad enough to shock the RBA

The Australian dollar has advanced against the euro, US dollar and British pound this morning after a good set of Australian data releases.


It was showing today that nominal retail sales grew by 0.3% m/m in January (seasonally adjusted).

ANZ Bank comment:

"In trend terms, monthly growth remains weak at just 0.1% m/m. Annual growth of 2.7% y/y remains well below long-run averages.

"This weakness continues the poor retail sales growth seen through 2011 and was widely expected. The details of today’s retail data continue to confirm existing trends, most notably, the resources-based, multi-speed nature of the Australian economy at present the increased share of household spending going into services and international spending and price deflation in a number of items (food, household goods). "

Elsewhere, total private sector credit growth for January was slightly weaker than market expectations (+0.2% m/m compared to market expectations of +0.3% m/m).

Business credit was lower for the month (-0.2% m/m, +1.4% y/y), while household credit increased 0.3% m/m (+4.7% y/y).

Despite the RBA rate cuts in Q4, credit demand was weak in January, across both the household and business sectors. We expect the positive impact of the rate cuts as well as improvement in business and consumer sentiment will be seen in improved credit growth over coming months.

While personal credit growth remains weak, improved equity market performance in recent months should drive an increase in margin lending and personal growth through the first quarter of 2012.

Construction work done in Q4 showed a surprise fall (-4.6% q/q), mainly due to a fall in engineering construction work done in WA (-29.3% q/q) after a big spike up in Q3 (+65.3%). Even so, the trend for this type of activity is still headed firmly upwards, with growth also looking strong in Queensland and improving in NSW.

But, importantly for the Australian dollar we note that ANZ Bank says that for the RBA, today’s data indicates the economy is still, in aggregate, tracking broadly on target, with headline GDP growth heading back towards trend growth (around 3%) in 2012.

January’s implied price deflation in retail sales confirms a benign near-term outlook for inflation, while subdued retail volumes and credit growth confirms aggregate household consumption remains contained, as the economy moves further into an intensive cycle of resources-related investment.

The ‘construction work done’ data do, however, highlight the ‘lumpy’ nature of this investment cycle. As a result, volatility is likely to become an increasing feature of Australia’s investment-driven growth path over the short to medium term.

 

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